EM currency breakdown - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, shares his views on the emerging market currencies:

"TRY has a 24% share of total EM issuance so far in 2017, up from 7% in 2016.  Its average share from 2005-2016 was 18%.  With inflation heading lower, the central bank will look for the first opportunity to loosen policy.  Political risk remains an ongoing issue as well."

"BRL has a 16% share of total EM issuance so far in 2017, down from 45% in 2016.  Its average share from 2005-2016 was 27%.  Brazil interest rates are falling sharply, and have likely hurt the real’s attractiveness.  Here too, political risk remains an ongoing issue."  

"ZAR has a 7% share of total EM issuance so far in 2017, down from 13% in 2016.  Its average share from 2005-2016 was 36%.  The SARB is likely to start an easing cycle in H2, which should erode the rand’s attractiveness.  Heightened political and downgrade risks lie ahead as well."  

"MXN has an 18% share of total EM issuance so far in 2017, up from 5% in 2016.  Its average share from 2005-2016 was 10%.  Fundamentals remain solid, and the peso has finally found some traction from Banco de Mexico’s tightening cycle."  

"RUB has a 17% share of total EM issuance so far in 2017, up from 6% in 2016.   Its average share from 2005-2016 was 2%.  The ruble could get some more traction if oil prices rise.  However, the central bank has resumed cutting rates, likely eroding the ruble’s allure."

"Taken together, these five EM currencies make up 80% of the EM Uridashi issuance so far in 2017.  This was up slightly from 76% in 2016, which was the lowest share on record.  From 2005-2013, these five never accounted for less than 90% of the total EM Uridashi issuance, and were typically more in the 98-99% range."  

"What changed?  Clearly, high yielding ZAR is no longer as attractive to Japanese investors as it once was due to deteriorating fundamentals, falling significantly below its longer-term average share since 2010.  BRL has also seen its share fall below its long-term shares this year.  Of this main group, RUB is seeing the biggest positive divergence so far this year from its longer-term average while MXN and TRY are seeing smaller positive divergences."

"Most importantly, INR continues to get a greater share.  That share stands at 19% so far in 2017 vs. the average of 4% from 2005-2016.  This also follows two good years, when INR had a 20% share in 2016 and 18% in 2015.  IDR had seen its share grow to 5% or more from 2014-2016 vs. the 2% average from 2005-2016, but the share has fallen to only 1% so far in 2017. "