Emerging markets received a boost courtesy of the Federal Reserve, Donald Trump and Xi Jinping at the beginning of 2019. What will be the next saving grace? Many analysts see that being oil.
Investors suspect that a prospective increase in crude oil prices might be the newest lift for the developing world after the U.S. government abandoned waivers linked to Iranian oil sanctions. Brent crude climbed by as much as 3.5% on Monday, coming close to reaching $75 per barrel today for the first time since Fall of 2018.
While there are certainly no guarantees the gains will endure, emerging-market assets have traditionally benefited directly from rising oil prices. MSCI’s EM currency index generated double-digit returns throughout the course of the three most significant oil rallies seen in this century.
Here are the six currencies which are most likely to benefit from climbing crude prices:
Ruble: The Russian ruble skyrocketed a world-leading 21% in the course of the most recent major oil rally which lasted from February of 2016 to October of 2018. Russia, which is the largest natural gas producer in the world, has witnessed investors buying up its local-currency debt in a sequence of record-high debt sales as the potential for loosened central bank policies later this year drives interest.
Peso (Colombian): The Colombian peso is also one of interest. Recently, JPMorgan Chase & Co. analysts referred to it as one of the most affordable emerging-market currencies, while some hedge fund managers are including the peso among their top picks.
Real: It’s a bit tougher to bet on the Brazilian real as the highs and lows of the nation’s forthcoming pension overhaul could counteract any other push, at least in the near future. One positive that stems from a recent round of bad news is that the real has become very affordable.
Lira: Turkey, an importer of crude oil, has frequently fallen behind other developing-nations when prices for the oil climb. Turkey is also more dependent on crude coming from Iran than any other nation. This means that the lira is potentially a weak link, according to some global strategists.
Rupee: The Indian rupee serves as the most adversely linked emerging-market currency to crude, at least during the past five years. Crude oil is the largest import good for the Asian country, which has seen a trade deficit every month for the past seventeen years. Over the short-term though, investor sentiment towards India, the third largest crude oil importer in the world, is very likely to be determined more by upcoming election results.
Peso (Philippine): Aside from Argentina and Turkey, the most significant losers in the latest selloff, the Philippine peso was hurt the most by the most recent oil rally. Even so, things could be quite different this time, given the more supportive domestic foundation, according to top money managers.