The selective case for carry

Emerging markets rebounded from the 2014-15 commodity price collapse with varying degrees of success. Most were forced to hike interest rates. But macro policy measures were rather more varied. This has created a fairly clear table of potential winners and losers, with yield compensating for a good chunk of the macro risks remaining in the winners camp. Then there is the other side of the coin, the outlook for the US dollar. While the Fed might be pushing ahead with policy normalisation, we think that the dollar’s multi-year bull run is coming to an end. And that has the potential really to catalyse an EM FX rally.

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