Investing in emerging-markets currencies post-invasion

As interest rates rise around the world, investors should look for opportunities in emerging markets — particularly in their currency exposure, a fixed-income portfolio manager says.

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Richard Lawrence, senior vice-president of global fixed income at Brandywine Global Investment Management in Philadelphia, Pa., said emerging markets were performing particularly well prior to Russia’s invasion of Ukraine.

“When we looked at the emerging-markets currency complex, we were seeing really good performance across all regions of emerging markets prior to the invasion,” said Lawrence. Further, as most observers agreed that global growth would slow in 2022, Lawrence said he expected the U.S. dollar to weaken. 

However, the Russia-Ukraine conflict changed some of those dynamics, so Lawrence said to look regionally. 

Not surprisingly, he said markets in Eastern Europe are struggling the most: namely Poland, Hungary and the Czech Republic.

Conversely, Latin American markets are holding up quite well, including Brazil, Mexico, Columbia and Chile. Asia, on the other hand, is more of a “mixed bag.” 

Further, due to disruptions in commodity supply caused by the invasion, commodity prices have soared. According to Lawrence, emerging-market commodity exporters will benefit as a result. 

For this reason, Lawrence favours exposure to currencies such as the Chilean peso, which is a copper-linked currency, and the Brazilian real, because it is correlated with iron ore and agricultural commodities. He also likes certain currencies in the developed markets for the same reasons, such as the Norwegian krone, the Swedish krona, the New Zealand dollar and the Australian dollar. 

With respect to emerging markets, Lawrence said there could still be opportunities in Eastern European currencies because of a “cheapness” that has been created in those currencies as the region moves towards a resolution.

“Yes, they’ve come under some pressure post-invasion, but we’ve got hawkish central banks in Eastern Europe,” Lawrence said.

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Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.