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UPDATE 1-MSCI EM currency index hits record high on skidding dollar, perky yuan

05/07/2021 10:35
UPDATE 1-MSCI EM currency index hits record high on skidding dollar, perky yuan

Adds details

- MSCI's emerging market currency index .MIEM00000CUS sailed to a new record high on Friday, lifted by the dollar .DXY skidding to a multi-month low in the wake of disappointing jobs data.

The developing markets currency benchmark, which is dominated by Asian currencies such as China's yuan CNY=, CNH=, jumped as much as 0.6% to 1,737.80. China's yuan strengthened more than 0.5% in offshore trading CNH= on Friday to hit its best level in 2-1/2 months.

The index is up 1% since the start of the year after recording more than 3% gains in 2019 and 2020.

Major banks are divided over the outlook for emerging market currencies after a year-end euphoria saw investors pile in thick and fast.

"We have been reducing EM risk in recent weeks, and we hold UW (underweight) FX given the shrinking list of attractive idiosyncratic opportunities and an upcoming period of EM growth underperformance," Luis Oganes at JPMorgan wrote in a note to clients on Thursday.

Meanwhile BlackRock recently upgraded local currency bonds to overweight, saying underperformance year-to-date had made valuations more appealing, especially against a backdrop of Treasury yields and the dollar stabilising. nL8N2MC4HD

Investment bank Morgan Stanley has also turned outright bullish on local currency-denominated emerging market bonds lately. nL8N2MD1YI

South Africa's rand ZAR= has emerged as the best performing currency among major emerging markets since the start of the year, up 3%, while Turkey TRY= and Argentina ARS= have seen their currencies tumble some 10% over the same period.

MSCI emerging market currency index and dollarhttps://tmsnrt.rs/2Q3jurK

EM currencies YTD and MTDhttps://tmsnrt.rs/3tu97KW

(Reporting by Karin Strohecker
Editing by Rachel Armstrong, William Maclean)

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