HSBC strategists believe that the re-pricing of emerging market (EM) currencies is now "sufficiently advanced" to offer an opportune moment to buy into them.
HSBC forecast that an EM currency rally would soon spread across all currencies as the asset class regains appeal. After this "initial phase," there will then be a differentiation between individual currencies, with HSBC favoring the Peruvian nuevo sol and Mexican peso over the Brazilian real.
The bank also prefers North Asia to South Asia and the Polish zloty to other emerging Europe currencies.
Heavy selling across emerging market currencies began in January, catching many investors off guard. In late January, the Argentinean peso posted its largest one-day decline in more than a decade, while other emerging market currencies, including the Turkish lira, the South African rand and the Brazilian real, also took a battering.
Many pointed to the reduction of the U.S. Federal Reserve's monthly stimulus program, which began in December and was reduced by another $10 billion in January, as the key reason for the sell off.