JPMorgan strategists downgraded emerging market currencies from 'overweight' to 'market weight'. The bank cited that the currencies are now overbought following substantial gains. This adjustment signals a more cautious short-term stance on the asset class.
JPMorgan also lowered the South African rand rating from 'overweight' to 'market weight'. This decision follows recent risk reductions in Central and Eastern European markets. It also aligns with adjustments to the bank's position on the Mexican peso. Strategists noted that the current crowded nature of the trade warrants risk reduction, despite potential long-term differences.
The downgrade follows a year of strong performance for EM assets. International investors showed significant interest, driven by attractive interest rates and a weaker U.S. dollar. The MSCI emerging market currency index rose approximately 7.5% over the past year. JPMorgan advises clients that this is a prudent time to reduce exposure.