Bloomberg
Published Jul 22, 2019 18:39
Updated Jul 22, 2019 19:47
Emerging Markets May Get Tough Lesson on Complacency Over Rates
(Bloomberg) -- Central bank meetings are turning into something of a minefield for emerging-market investors.
Turkey will announce its rate decision on Thursday, with estimates for a reduction ranging from 50 to 800 basis points. Russia is expected to ease monetary policy a day later.
The concern among analysts is that central banks, especially Turkey’s, will disappoint investors by lowering borrowing costs too aggressively, eating away at the relatively high real rates in emerging markets. But that risk hasn’t been priced in, with implied volatility for currencies near the weakest level since 2014 and the yield on local bonds at a record low.
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Currencies as they are “getting to a point where they are cyclically overvalued,” said Anders Faergemann, a fund manager in London at PineBridge Investments. “The wall of money looking to target in on emerging markets makes for a challenging investment environment as fundamentals are getting more fragile.”
Every currency across developing nations has risen since May 17 after concern over global growth spurred the world’s most powerful central bankers to turn dovish, prompting a hunt for yield. That helped narrow the difference in implied volatility between emerging-market currencies and their developed peers to the smallest since March 2018, according to JPMorgan Chase & Co (NYSE:JPM). indexes.
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Written By: Bloomberg
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