Multilingual AI-driven EM Outlook
Synopsis:
The USD has weakened more than 9% year to date, providing broad support for emerging market currencies and also contributing to EM equity market outperformance of developed markets. This is welcome news for EM investors and policymakers alike, since a weaker USD reduces the debt burden of EMs with USD denominated liabilities and lowers import costs, giving central banks room to ease rates.
Naturally, the local language media-based sentiment on the ground for the native currencies is now brimming positive, with a few exceptions. And tracking this sentiment on EMAlpha’s Macro Monitor dashboard, where proprietary multilingual AI detects local language market sentiment in the newsflow, provides early signals of action in the FX and other financial markets.
The following are some recent FX sentiment trends among a few key Emerging Markets:
Brazil:
Fig. 1: Brazil Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local Brazilian news and used local language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The Brazilian real (BRL) is up more than 8% against the USD year to date to April 24, its strongest level in nearly three weeks. Strong commodity export flows supported Brazil’s external position and an opportunity for Brazil to expand its trade with China is bolstering the currency, along with Brazilian equities, which have advanced nearly 12% YTD.
However, local sentiment for the BRL and the equity market, which may indicate some upside potential on the back of improving sentiment for both. The local mood regarding inflation is dour, due to rising food prices, despite the strengthening BRL.
Mexico:
Fig. 2: Mexico Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local Mexican news and used local language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The Mexican peso is trading at a nearly six-month high, and local language sentiment for the currency is also riding high.
USD weakness and Mexico’s benchmark interest rates that are relatively high, but with scope to ease further to address any economic weakness, are a good set-up for the peso.
India:
Fig. 3: India Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local Indian news and used local language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
The rupee has been gaining steadily, nearing a four-month high, on a softer USD and foreign capital inflows. INR sentiment, however, went negative April 23 on dollar strength after Trump stated that he has no intention of firing Fed chief Jerome Powell.
The negative sentiment for the currency is reflected, however, in the INR’s slide against non-USD currencies, notably the EUR and GBP.
Market analysts remain optimistic about the rupee’s near-term prospects, citing the favorable interest rate differential, healthy foreign exchange reserves (note the FX Reserve sentiment below), and ongoing foreign investment.
China:
Fig. 4: China Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local Chinese news and used local language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
Local sentiment for the yuan (CNY) is strongly positive (also noted is the strong Exports sentiment).
The CNY’s exchange rate has been managed to stabilize cross-border capital flows, support exports, and maintain exchange rate expectations.
Investor sentiment improved following comments from Trump, who suggested potential tariff reductions on Chinese goods. A further de-escalation of trade tensions could further support the CNY.
South Africa:
Fig. 5: South Africa Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local South African news and used local language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
Improving sentiment for the South African Rand (ZAR) has been noted since early April and, thus, it is the best performing EM currency so far this month (+3% vs the USD).
South African equities have also been ripping higher, with the FTSE/JSE Top 40 Index rising 10% YTD despite Stock Market Sentiment being in the “meh” zone.
The global gold rally has helped both equities and the ZAR by boosting mining sector profits and export earnings. Also in support is an improved fiscal outlook and macro data.
The sentiment towards the Government cratered on proposed VAT tax hikes, threatening the coalition government, but the plan was scrapped on April 24, which should embolden investors going forward.
Half of the world’s web-based content is in languages other than English. Learn more about using EMAlpha’s multilingual AI to identify investable signals in local language content.
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