Latin America Outperforms as Emerging Market Currencies Gain
Emerging-market currencies gained to start the week, with Latin American names getting a boost from a drop in volatility which further boosts their carry appeal.
MSCI’s index tracking currencies in the developing world climbed 0.2%, with the Mexican peso, Brazilian real and the Chilean peso among the best performers. South Korea’s won led advances in the group, benefiting from exporters’ dollar sales.
The gauge’s advance follows three straight weeks of weekly gains.
“There is still a good amount of interest in carry and LatAm still offers the most attractive carry across EM,” said Brendan McKenna , a strategist for Latin American currencies and rates at Societe Generale. “With volatility still low, despite geopolitical headlines and escalation risk alongside select pockets of local rising political risk, LatAm carry appeal is still unwavering for the time being.”
Carry currencies have “remained remarkably resilient despite a challenging global backdrop” in recent months, according to Barclays strategists including Erick Martinez . “We expect the positive carry dynamics to persist through the summer amid subdued FX volatility,” the group wrote in a note.
Read more:
While some risk assets remained steady, a renewed bout of oil volatility dragged down , amid concerns of escalation in the Middle East.
US President Donald Trump vowed that Iran “will pay” for killing three US soldiers in recent days, even as mediators proposed a new truce with the Middle East war widening further.
Earlier, Iran said mediators were in touch with proposals on how to ease hostilities after more than a week of worsening clashes. Tensions remain high and the conflict looked set to expand further after Tehran-backed Houthi militants in Yemen threatened to blockade Saudi Arabia in the Red Sea.
Read more:
Emerging-market equities also remained under pressure, extending losses to a third day. A barometer for EM stocks fell as much as 1.1% on Monday, dragged down by South Korean companies.
Meanwhile, last week investors poured billions into BlackRock’s exchange-traded fund tracking South Korean stocks, underscoring strong appetite for artificial intelligence companies even as wild swings continue to roil local equities.
The $22.4 billion iShares MSCI South Korea ETF recorded over $2.8 billion in fresh flows last week alone, the biggest weekly inflow on record. The massive influx of money into the fund was also over twice as large as the previous weekly record from February, when the ETF received more than $1.2 billion in inflows.
Read more: Rush for Korean Stocks Fuels Record Inflow into BlackRock ETF
