Further EM weakness to be seen in the coming days - BBH

According to a report published by BBH Global Currency Strategy Team, technical indicators for many of the EM currencies suggest overbought conditions.

Key points

"Recent strength in the US economic data and hawkish Fed comments has led the market to price in another 25 bp hike this week.  Whether the Fed hikes in March or May makes little difference in the long run.  What matters more is that the markets are not fully pricing in the risk of more than two hikes this year.  When that repricing takes place, EM is likely to come under greater pressure. "

"Furthermore, technical indicators for many of the EM currencies suggest overbought conditions.  With the technical largely lining up with the fundamentals, we believe further EM weakness will be seen in the coming days."

"Whatever the pace and scope of Fed tightening is, we still believe it is very important for investors to continue focusing on country fundamentals and also on hedging out currency risk whenever feasible.  Regionally, Asia is the best equity performer so far in 2017 (up 10.9%), followed by Latin America (up 8.3%) and then EMEA (up 1.1%)."