Currencies in emerging markets have been on a losing streak since the beginning of 2024, falling towards their worst start to the year since 2020, pressured by a stronger-than-expected USD and carry traders fleeing Latin American markets, writes the Financial Times.

By the numbers: JPMorgan’s index for currencies in emerging markets has dipped 4.4% in 2024 — a dip more than double the size of their decline over the past three years.

Carry trade investors have been stepping back from some of the larger emerging markets: Despite investor appetite growing in the beginning of the year for the carry trade in emerging markets, local interest rate uncertainty and elections spooking the markets have destroyed much of the gains made. This is particularly true in Latin America, where the MXN has fallen nearly 10% against the greenback after Mexico’s election of Claudia Sheinbaum spooked the markets and other currencies in the region followed suit.

Thankfully, the carry trade is alive and well in some smaller emerging markets — including Egypt: Some carry trade investors have been ditching larger emerging markets and are instead focusing on local currency bonds from smaller countries working their way out of economic difficulties with high interest rates like Egypt and Nigeria, the salmon-colored paper writes.

But don’t forget about the big USD elephant in the room: With the DXY index showing the USD up 4.4% since the start of the year against six of its main trading partner’s currencies in addition to traders cutting expectations of six or seven interest rate cuts this year to just two, EM currencies have become much less attractive. “A bit more than half of EM weakness has been about USD strength,” explained Abrdn’s EM portfolio manager Kieran Curtis.

EGX30

26,418

+1.1% (YTD: +6.1%)

USD (CBE)

Buy 47.64

Sell 47.78

USD (CIB)

Buy 47.66

Sell 47.76

Interest rates (CBE)

27.25% deposit

28.25% lending

Tadawul

11,499

-1.3% (YTD: -3.9%)

ADX

9,013

+0.7% (YTD: -5.9%)

DFM

4,012

+0.6% (YTD: -1.2%)

S&P 500

5,465

-0.2% (YTD: +14.6%)

FTSE 100

8,238

-0.4% (YTD: +6.5%)

Euro Stoxx 50

4,907

-0.8% (YTD: +8.5%)

Brent crude

USD 85.24

-0.6%

Natural gas (Nymex)

USD 2.71

-1.3%

Gold

USD 2,331.20

-1.6%

BTC

USD 64,284.70

+0.1% (YTD: +52.0%)

THE CLOSING BELL-

The EGX30 rose 1.1% on the last close before the Eid break on turnover of EGP 2.9 bn (36.2% below the 90-day average). Local investors were net buyers. The index is up 6.1% YTD.

In the green: Abu Qir Fertilizers (+7.7%), Ezz Steel (+4.8%), and Madinet Masr (+4.5%).

In the red: Eastern Company (-5.3%), Egypt Kuwait Holding (-1.0%), and Palm Hills Development (-0.7%).

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