- JP Morgan say BRL’s currency fundamentals remain attractive; they enter into USD/BRL 5.00/4.80 put spreads. BRL’s now better valuations coupled with its solid carry profile, strong external accounts, and upside growth surprises, at a time when idiosyncratic risk seems the lowest in years, warrants going back into longs, they say.
- A period of COP underperformance, after large outperformance earlier this year, is likely ahead, JPM say. They enter into a long BRL/COP trade (entry: 841.58; target: 890; review: 810) and move UW COP in the Model Portfolio. COP is no longer looking cheap in valuation models, with the REER already back at pre-pandemic levels, they say.
- MXN’s high beta to US markets coupled with somewhat heavy positioning after a strong rally explain its recent weakness, in JPM’s view. However, they believe the cyclical forces underpinning MXN remain in place, including high carry and low imbalances. Banxico’s late start of the easing cycle is likely to consolidate its top carry trade position as other EM central banks ease and bring back inflows.
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