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As per the SG’s updates, their visiting hedge funds and real money clients the US and Europe revealed numerous insights regarding EM sentiment and positioning.
Real money: Virtually all real money investors are overweight their benchmarks, but are growing concerned that the easy part of the cycle (i.e. yield compression) is over.
They are happy to earn carry but recognize this is a more challenging time if rates can’t fall further alongside greater two way FX risks. They seem less committed to overweight exposure compared to earlier in the year but there was not a sense of urgency in paring back risk.
Hedge funds: This segment was also decidedly positive EM FX, though not as much compared to real money. Rates views were very dispersed with limited risk allocations except in receiver positions in places such as Brazil and Russia. Overall positioning seems light with a bias to buy EM FX on weakness, but in general, clients seemed to be in survival mode heading into year-end.
EMEA EM FX: We move UW overall. We add a TRY UW and buy an outright USDTRY call option.
Latin America FX: We remain neutral LatAm FX, but move OW COP and MW PEN, in addition to our OW BRL, Neutral MXN, and UW CLP. We target 2,900 for USDCOP.
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