Reserve Stagnation Boosts Buck
In their latest Macro Keys (May 29th), our Emerging Market strategy team highlights that the current round of weakness in EM FX is likely to be with is for some time. We have seen over the past few days how value hunting in G10-risk currencies has not been felt in EM, and consensus is forming that the moves in these markets will be structural. Consequently, EM central banks more likely to be worrying about defending their currencies against depreciation in the medium term and as it stands, 2013 will then mark the year in which reserve growth peaks. It is even reasonable to entertain the prospect of reserve accumulation hitting an absolute ceiling, especially if in the longer term EM countries choose to transition towards market-driven exchange rates and embrace a post-export growth model.
Click here to read the full report: UBS