Economy
ANALYST VIEW - Hungarian forint highly exposed to rising risk aversion - Calyon
Kotecha said the outlook today looks a little rosier following the positive equity close in the US and firmer Asian equities, but noted that EM equities have begun the year in bad form, falling sharply, echoing the slide in major indices.
Even the so called BRIC country equity indices of Brazil, Russia, China and India have fallen sharply as revealed in the MSCI BRIC index, he added.
“Considering these were seen as the countries least exposed to US economic weakness the slide in equity markets comes as bad news. Emerging market de-coupling appears to be non-existent at present as fears of US recession continue to bite into confidence," the analyst said.
“Reflecting the vulnerability to risk aversion, correlations between the Calyon Risk Aversion Barometer and some emerging currencies are quite high at present," Kotecha said.
He added that for instance, Hungary's forint “appears highly exposed to rising risk aversion, with the 1-month correlation between the Barometer and EUR/HUF at a strong 0.85."
Of course, the HUF is also suffering from deteriorating domestic fundamentals, he did not forget to mention.
He believes the safe haven emerging market currencies such as the CZK and SGD have benefited from higher risk aversion and have strengthened as risk aversion rises.
“We continue to believe that risk aversion will remain elevated suggesting that upside for currency pairs such as CZK/HUF will remain in place over coming weeks," Kotecha concluded. Consequently, Calyon has initiated a long CZK/HUF trade at 9.957, targeting 10.360, stop loss 9.755.
Budapest Economics also said today that the HUF appeared to be the mos vulerable among CEE currencies.
Even the so called BRIC country equity indices of Brazil, Russia, China and India have fallen sharply as revealed in the MSCI BRIC index, he added.
“Considering these were seen as the countries least exposed to US economic weakness the slide in equity markets comes as bad news. Emerging market de-coupling appears to be non-existent at present as fears of US recession continue to bite into confidence," the analyst said.
“Reflecting the vulnerability to risk aversion, correlations between the Calyon Risk Aversion Barometer and some emerging currencies are quite high at present," Kotecha said.
He added that for instance, Hungary's forint “appears highly exposed to rising risk aversion, with the 1-month correlation between the Barometer and EUR/HUF at a strong 0.85."
Of course, the HUF is also suffering from deteriorating domestic fundamentals, he did not forget to mention.
He believes the safe haven emerging market currencies such as the CZK and SGD have benefited from higher risk aversion and have strengthened as risk aversion rises.
“We continue to believe that risk aversion will remain elevated suggesting that upside for currency pairs such as CZK/HUF will remain in place over coming weeks," Kotecha concluded. Consequently, Calyon has initiated a long CZK/HUF trade at 9.957, targeting 10.360, stop loss 9.755.
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