Emerging Market Currencies

■ EM currencies supported by a weaker dollar and easing investor concerns and political worries during April-June 

■ As long as the situation in the Middle East and US tariffs do not cause chaos, market attention is expected to continue focusing on emerging countries such as Latin America. 
 

    This article briefly summarizes the market trends of emerging market currencies during April-June 2024. We focus on 12 countries in Asia (China, South Korea, Taiwan, Thailand, Indonesia, Malaysia), Latin America (Brazil, Mexico), Eastern Europe (Hungary, Czech Republic), and other major countries (South Africa, Turkey) (data as of the end of June). During April-June, many EM currencies strengthened due to the continued weakness of the US dollar and the US government’s announcement that it would suspend the imposition of tariffs on most trading partners, except for the unified tariff (10%) and tariffs on certain goods (such as automobiles), until July 9. Against this background, only two of the 12 currencies depreciated against the US dollar: the Turkish lira (-4.9%) and the Indian rupee (-0.3%).  
 
    All but two currencies appreciated against the dollar, with the Taiwan dollar (+10.9%), Czech koruna (+9.1%), Hungarian forint (+9.0%), Mexican peso (+8.4%), and South Korean won (+8.1%) all rising by more than 8%. The Taiwan dollar rose by over 6% within just two days in early May amid reports that the U.S. had asked it to curb the strength of the dollar. However, Taiwan's central bank is said to have intervened to sell its currency, suggesting that authorities are still monitoring the situation. In South Korea, its main stock index has risen by 13.8% since the June 3 presidential election, supported by overseas capital inflows. Additionally, both South Korea and Taiwan, East Asian countries with shared semiconductor export interests, contributed to the won's appreciation alongside the Taiwanese dollar. Although the Czech Republic and Hungary have different credit ratings (AA for the Czech Republic and BBB for Hungary), both economies heavily rely on exports to Germany, especially in the automotive sector. The strengthening of their currencies was also driven by expectations of economic recovery in Germany due to increased fiscal spending. Mexico remains engaged in negotiations with the US and is exempt from mutual tariffs, which is one reason for its currency's appreciation.  
 
    The emerging market currencies during April-June were supported not only by the weakening US dollar and improved risk appetite but also by the trend of regional currency strengthening in areas with common export sectors, such as Taiwan, South Korea, the Czech Republic, and Hungary. This can also be interpreted as investors' diversification and exchange rate hedging. Currently, the US dollar is still trending downward. If stability in the Middle East persists and the US extends the suspension of mutual tariffs, focus on emerging markets may continue. Looking ahead to July-September, attention might shift to Central and South American regions, which offer relatively attractive interest rates. However, the strong performance in April-June was largely due to eased political risks, so future currency trends could diverge depending on each country's domestic political situation.