Emerging market currencies fell in value as the Federal Reserve became more hawkish. Despite this, HSBC economists do not expect a repetition of the 2013 ‘taper tantrum,’ as these currencies will be supported by stronger fundamentals.
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1. EM current account balances are healthier than they were in 2013, owing to weak demand for EM imports during the last year.”
“2. The investor position in emerging markets is less stretched than it has been in the past, indicating that these currencies are less vulnerable to FX outflow pressure.”
“3. In comparison to 2013, several EM currencies, particularly commodity currencies, are presently undervalued.”
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4. Inflationary forces, rather than depreciation pressures, are driving several EM central banks to contemplate raising monetary policy rates.”
“Over the rest of the year, we don’t see much more negative. While there is a chance that the USD would perform better than expected, the fundamentals of emerging market currencies are stronger this time around, so don’t add to the fire.”/n
