EM Strategy Update: Iran deal: Lower oil prices open selective bullish opportunities

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EM Strategy Update: Iran deal: Lower oil prices open selective bullish opportunities

two regions are not oil exporters and will benefit

from both stronger sentiment and lower oil prices (CLP, MXN, ZAR, CZK, HUF, ILS;

positive impact also on our remaining tactical long in TRY). Our 26-Jun-26 1x1.5 put

spread (5.20/5.00) in USDBRL is our remaining bullish expression in an oil exporter,

but we believe positive risk sentiment will likely dominate near-term BRL price action,

while idiosyncratic risks have led us to decrease overall exposure to BRL via moving

MW from OW.

EM Asia FX likely faces headwinds beyond the energy shock, leaving it a funder in

the GBI-EM portfolio. While Asia has been disproportionately affected by the energy

crisis, Asia FX has stopped responding positively to improving newsflow since the Apr

ceasefire. Asian currencies have instead weakened further despite lower oil prices and

an EMFX rebound, with a hawkish re-pricing of the Fed driving financial flows (or the

lack therof) dominating BOP dynamics. These pressures are likely to continue despite

improving CA from lower energy prices, even where the tech surge has lifted exports in

TW and KR. Less headline risk argues for FX carry, and we stay short SGDTWD,

which also benefits from lower energy prices. The sole exception remains the RMB,

where we stay long CNH via options. That said, we remain wary of a squeeze, whether

from a peace deal or policy makers, and have already closed our UW INR FX position

on the back of the RBI’s recent measures to attract capital flows and have turned long

INR vs IDR and PHP in outright trades. This leaves us UW THB FX on the GBI-EM,

where surging investment should swing the CA surplus into deficit.

Frontier Local Markets