Amundi Finds Currency Bargains in Beaten Down Emerging Markets

  • Trillion-dollar firm says rupee, Mexico's peso undervalued
  • Goldman Sachs, Schroder also see opportunities in sector

Trillion-dollar asset manager Amundi SA is looking to scoop up beaten-down developing-nation currencies including India’s rupee and Mexico’s peso as it hunts for bargains in the $5.3 trillion-a-day foreign exchange market.

The biggest publicly traded money manager in Europe with 952 billion euros ($1 trillion) under management says the currencies, which have dropped 5.7 percent and 13 percent against the dollar this year, have fallen too far relative to the health of their economies.

Mexican peso and Indian rupee, normalized scale

"Some emerging currencies are extremely undervalued," said Bastien Drut, a fixed-income and foreign-exchange strategist at Amundi in Paris. “These are worth overweighting for those investors -- like us -- who plan to rebuild a long portfolio in emerging and commodity currencies.”

Amundi joins analysts and investors from Goldman Sachs Group Inc. to Schroder Investment Management suggesting that developing markets may turn a corner in 2016.

Emerging-market currencies have plunged an average 14 percent this year, the most since the 2008 financial crisis. The weakness has coincided with an economic slowdown in China, slumping commodity prices and a rally in the dollar as traders brace for higher interest rates.

"The next big trade in currency markets is likely to be in emerging markets," said Brendan Murphy, a senior money manager at Standish Mellon Asset Management Co. who manages global currency risk overseeing $19 billion of fixed-income assets. He’s also betting on Mexico and India, nations he said have stronger fundamentals than most other emerging markets.

The Indian rupee was down 0.2 percent at 66.8400 per dollar as of 10:34 a.m. in New York. The Mexican peso fell 0.8 percent to 17.0271 per dollar.

Attractive Economies

While the economic outlook remains weak for many economies in Asia, India stands out because it’s benefiting from lower oil prices and a boost in business confidence as Prime Minister Narendra Modi and Reserve Bank of India Governor Raghuram Rajan look to enact more market friendly policies, Amundi’s Drut said. Mexican economic growth, and the prospects for the peso, will be bolstered by an improving U.S. outlook, he said.

Deciding when to jump into the trade is critical, according to Drut. The Federal Reserve may raise interest rates as early as this month and lift the dollar against emerging-market currencies. That may mean waiting until 2016 to find buying opportunities, he said.

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