LONDON (Reuters) - Morgan Stanley said on Monday it had turned bearish on emerging market currencies and entered a long position in U.S. dollar-South African rand as well as buying five-year credit default swaps for Brazil and Colombia.
“A range of October risks such as trade talks, tight USD
liquidity, relative monetary policy/growth differentials and EM
supply cause us to switch back to a bearish EMFX stance,” Morgan Stanley strategist James Lord said in a note to clients.
Monetary policy and growth differential favored the U.S. dollar over emerging currencies, Lord wrote, adding that the possibility of Washington restricting capital flows to China, quarter-end liquidity tightness, as well as quantitative signals for a risk-off stance all had contributed to the change in position.
Reporting by Karin Strohecker; Editing by Tom Arnold