September 30, 2019 / 11:42 AM / 14 days ago

Morgan Stanley turns bearish on EM currencies

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo

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

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