When pandemic-related fears peaked in March 2020, emerging market currencies sold off heavily. However, they have recovered strongly since then, with an 8% rise for the currencies comprising the JP Morgan GBI-EM Global Diversified Index. Looking ahead, while selectivity will be paramount, we think the case for continued outperformance against the US dollar is persuasive. This belief is underpinned by three main factors: 1) long-term valuations; 2) emerging markets’ economic fundamentals; and 3) a less favourable outlook for the US dollar, owing in part to waning ‘US exceptionalism’.
