EM currencies: Contained impact outside of CEE – Goldman Sachs

Kamakshya Trivedi, Research Analyst at Goldman Sachs, notes that the EM assets sold off across the board on Friday in sympathy with the global “risk-off” move following the unexpected Leave outcome in UK’s EU referendum, with the PLN (among the Central and Eastern European (CEE) currencies) and ZAR (among the high betas) underperforming.

Key Quotes

“Risks to EM assets more two-sided after initial resets. European growth downgrade will impact CEE currencies; we see reduced upside to PLN and HUF 12 months out with further currency weakness possible if political uncertainty spills over into the rest of the EU.

Outside of the CEE, the more durable impact on EM assets may come from the fact that DM yields will stay lower for longer boosting the relative appeal of EM carry and yield in the medium term.”