Tighter liquidity, shifting portfolio allocations and falling commodity prices meanperformance in manufacturing exports will be key for EMFX. Insofar as exportsfollow the law of one price, valuations provide us with a clue (see Exchange RatePerspectives for our latest models). However, a simple back of the envelopeapproach also works well, with the added advantage of capturing the last EMcycle. Regressing changes in REERs against export share since 2007 displayslittle relationship across EM and G10 combined (a likely result of lowerelasticities in industrialized economies), but a clear one across EM ex. China.
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