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.
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