Global Markets Revive: Emerging Market Assets and Currencies Strengthen
With emerging market currencies and equities surging, investors are looking for high-yield opportunities. Despite the strength of the US dollar, how do Latin American and Asian currencies stand out?
Emerging market assets continued their winning streak in May, countering the continued strength of the US dollar. The respective currencies and equity indices continued their rally for the fifth and fourth trading days respectively.
Despite the US dollar’s strength against the G-10, Latin American currencies such as the Colombian peso, Brazilian real and Peruvian sol have posted notable gains among 23 emerging-market currencies tracked by Bloomberg. The rally has allowed investors to re-evaluate high-yielding investment opportunities amid reduced volatility following April’s recession and other favorable factors. Simon Harvey, head of currency analysis at Monex Europe Ltd., noted that investors in Latin America have found a favorable environment for carry trades, which has supported currencies in the region.
Developments in Asian Markets
Among Asian currencies, the weakening of the Japanese yen weighed on the Indonesian rupiah and the Thai baht in particular. Asian currencies outside Japan were seen depreciating again following the unexpected policy changes implemented by the Bank of Japan in recent weeks. Harvey added that this was a major factor in the volatility in Asian markets.
In Turkey, authorities took steps to ease restrictions on offshore FX swaps, which had a positive impact on Turkey’s credit default swaps. Such developments may increase investor confidence in the region and ease the pressure on the Turkish Lira.
Equity and Bond Markets
The Asian stock index was particularly notable for the performance of companies in Hong Kong, China and India. This index has risen by around 4.4% over the year, suggesting that Asian markets are becoming more attractive to global investors.
Countries such as Mexico and the Philippines are planning to increase their influence in international credit markets by focusing on high-yield bond markets. Gabriel Yorio, Mexico’s deputy finance minister, said his country was considering reissuing yen-denominated debt in the second half of the year. The Philippines, on the other hand, took its place in international markets this year with a bond sale of 2 billion dollars.
India’s government bond market is scheduled to be included in an emerging market index by JPMorgan Chase & Co. from June, with its addition to global debt indexes. This increases global funds’ interest in Indian bonds, creating the potential to attract more investment into Asia’s third largest economy.
Emerging market assets and currencies remain a favorite among investors despite the strong rise of the US dollar. Positive developments in Latin American and Asian markets have an important place in global economic dynamics. Investors are taking into account the high return potential offered by these markets when evaluating regional opportunities.
