These pros say emerging market currencies are the place to be - if you're picky.
Hurricane Sandy may be creating risks all over the Northeast, but in the FX markets, tail risk seems to be tapering off. At least that seems to be the view of many investors, as they pile into emerging market currencies in a search for yield.
A number of emerging market central banks in countries are trying to curb enthusiasm for their currencies. (See, for example, Hong Kong.) But not all of them, say Alberto Ades and Vasileios Gkionakis, strategists at Bank of America Merrill Lynch.
"As the risk-on rally continues, we still recommend high beta currencies with low FX intervention risk," they wrote in a note to clients.
But which ones?
The BofA Merrill Lynch strategists are somewhat bullish on the Indian rupee and more so on the South Korean won. Their discussions with policymakers in South Korea suggest there is less unease with currency appreciation, and "the sensitivity of Korean exports to changes in KRW has declined over the years; therefore, we expect minimal intervention risk in the won."
Elsewhere, Ades and Gkionakis favor the South African rand, arguing that markets have priced in a lot of bad news in the wake of the widespread strikes and the country's credit-rating cut. Slowing declines in Chinese economic growth should bolster commodity prices, they say, which should also help the rand and the Russian ruble.
Plenty of strategists are bullish on the Mexican peso these days, and Ades and Gkionakis are no exception. They says it is relatively undervalued, and they think the Mexican central bank will allow it to appreciate.
Emerging market currencies can be highly illiquid, so trading them requires a strong appetite for risk and volatility. But if you're in search of a high-risk trade with the potential for yield, Ades and Gkionakis are giving you plenty to choose from.