The last month has seen EM financial markets recover from their poor start to 2016. Our Synthetic EM Exchange Rate Index has rallied to its strongest level since November. Almost all EM currencies have strengthened against the US dollar over the past month, which has been in keeping with general US dollar weakness. The best performers have been the currencies of key commodity producers, such as the Russia, Brazil and Colombia. The one key exception to the trend of appreciation against the dollar was the Egyptian pound, reflecting the Central Bank of Egypt’s decision on 14th March to devalue the pound and move to a more flexible exchange rate regime. EM equities have also more than recouped their losses from earlier in the year. Looking ahead, while bumps are likely along the way, our expectation that commodity prices will continue to edge up and that fears of a global recession will fade mean that we remain upbeat on the prospects for EM equities and currencies.
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