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Volatility spikes do not last very long: spotting an opportunity

Weekly investor research

28 August 2018

EM FX volatility has spiked to levels last seen during 08/09 and in the run-up to Lula’s presidency in 2002. It is difficult to see why such a strong response is justified in the current circumstances and spikes in FX volatility of this magnitude tend in any case to be very short-lived. This report examines the causes and opportunities created by this occurrence. Elsewhere, there is election fever in Brazil, sanction fears in Russia, Trump sends tweet missiles at South Africa, Ecuador cuts spending and secures new funding, Venezuela undertakes meaningless reforms and Costa Rica undertakes meaningful reforms. The global backdrop is deteriorating again at the margin as markets continue to discount dangerously growing risks in developed markets.

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