Mexican Peso, Brazilian Real, and the EM risk Cycle

The forward points on BRL and MXN show, approximately, a 6% breakeven depreciation over the next 12 months. Or, in other word, 6% carry. If you believe emerging markets are in the early phases of the same kind of slow, muddle-through recovery we have seen in the US and increasingly Europe, it is hard to imagine spot underperforming the forwards as a longer-term investment proposition. This is the phase of the global risk cycle where the desire for returns is very high but the forward-looking scope for returns in the US market appears limited.

It also looks to me as though there is still tons of scope for further “normalization” from the unwind of the EM bear market.

NB: This blog is currently unlocked. It will convert to locked, accessible to @BehavioralMacro subscribers through PremoSocial, in the near future.

One Reply to “Mexican Peso, Brazilian Real, and the EM risk Cycle”

Leave a Reply

Your email address will not be published. Required fields are marked *