德意志银行-新兴市场外汇市场-20170807-deutschebank-emfxwhatisdrivingemfx.pdfVIP

Deutsche Bank Research Emerging Markets Economics Date Foreign Exchange 7 August 2017 FX Spot Gautam Kalani, PhD Strategist EM FX (+44) 20 754-57066 gautam.kalani@ What is driving EM FX? In this report, we address the following questions using PCA, regression, beta and correlation analyses: What factors are driving global market dynamics? Using a Principal Component Analysis (PCA), we find that in 2017 the oil price has been the main variable capturing global market dynamics, partly because it encompasses sentiment around global growth and the dollar. European financials and EM equities also have significant explanatory power, as they capture European and global risk sentiment, respectively. Is EM FX fairly valued on PCA metrics, and are there any currencies that are significantly misaligned? Using a short-term valuation metric derived from the PCA, we find that the EM FX index is currently close to fair value. However, there can be significant misalignments in specific currencies. Extending this analysis on a currency-by- currency basis, we find that USDRUB and EURPLN are significantly above their respective fair values on the PCA metric, suggesting scope for near-term RUB and PLN appreciation. These results are in line with our recent recommendations to take profit on RUB shorts and to buy PLN