Are Emerging Market Foreign Currencies Finally Attractive?

Emerging Markets
Sovereign Debt
Morgan Stanley Investment Management
This paper, from 2015, examines the attractiveness of emerging market currency (EMFX) valuations using long-term, medium-term, and short-term FX valuation frameworks.

Teal Emery

Morgan Stanley Investment Management

Morgan Stanley Investment Management


November 1, 2015

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Emerging market foreign currencies (EMFX) have sold off dramatically in the past two years since the 2013 Taper Tantrum. Accounts in the financial media often center on the role of the strong U.S. dollar, sensitivity to developed market (DM) monetary policy, or the fall in commodity prices. In this paper, we try to answer the question of whether or not, after the recent sell-off, are EMFX finally at attractive levels. We do this by presenting our long-term and medium-term framework for analyzing currencies. We first apply it to EMFX as an aggregate, and argue that EMFX is beginning to look compellingly attractive by both long-term and medium term valuation standards. On a long-term basis, EMFX real effective exchange rates (REERs) have adjusted significantly, and are now well below long-term averages. Our medium-term framework shows EMFX to be 1.2 standard deviations cheap compared to “fair value”, a level of undervaluation greater than that seen during the Global Financial Crisis. We gauge these findings against terms of trade, changing country fundamentals and global factors. Finally, we use our frameworks to identify potential winners and losers in the EMFX sell-off.

Citation Information


BibTeX citation:
  author = {Emery, Teal and Nystedt, Jens},
  publisher = {Morgan Stanley Investment Management},
  title = {Are {Emerging} {Market} {Foreign} {Currencies} {Finally}
  date = {2015-11-01},
  url = {},
  langid = {en}
For attribution, please cite this work as:
Emery, Teal, and Jens Nystedt. 2015. “Are Emerging Market Foreign Currencies Finally Attractive?” Morgan Stanley Investment Management.