EM Currencies: Volatility and Opportunity?

Written by: Global Thought Leadership | June 15, 2018

Source: Bloomberg, June 15, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


  • So far this year, emerging market currencies (EM) have demonstrated their sensitivity to global economic trends, falling rapidly as short-term capital flows toward the U.S. to take advantage of rising short-term interest rates – and driving the greenback to levels not seen in over a year on a trade-weighted basis.
  • In addition to interest rate differentials, currencies like the Argentine peso, the Turkish lira, the Brazilian real, the Mexican peso and the South African rand have each reflected their economies’ own internal challenges as well as their exposure to the rising dollar, not least through the dollar-denominated price of oil. Since the beginning of Q2 2018, these five currencies have fallen -28.0%, -16.6%, -13.4%, -12.9% and -12.0% respectively against the U.S. dollar.
  • Little surprise, then that these descents have been accompanied by rising volatility. Since the middle of March, when it became clear that the Federal Reserve was committed to “normalizing” its benchmark target rate to post-2008 levels, EM currency volatility has broken away from the volatility of the more sedate G-7 currency group.
  • In times of rising currency volatility, it’s easy to lose track of the economic fundamentals of  many – but clearly not all – EM economies, where the transition to services-led economies from raw-materials providers have reached a tipping point.
  • When upward-bound economies are over-discounted by global volatility trends, the difference represents a potential opportunity to astute, active investors driven by commitment to emerging markets and a keen sense of the strong fundamentals to be found by looking past the noise.



Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Active management does not ensure gains or protect against market declines.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.