Сurrency forecasting

  • Aug 29 2022
  • by
  • Analyst AZA
Сurrency forecasting

Emerging markets currency forecasting

As currency traders, it's important to acquire knowledge about the difference between economies around the world, and understand why they are different since the performance of the economy can have an influence on individual businesses. A country that has a strong economy tends to have a strong currency, and this article will be giving a basic explanation of one of the best indicators for traders who are interested in trading emerging markets currencies or CFDs. The MSCI world ETF covers the developed markets, with the United States in particular dominating that portion of the global landscape. One can ask the question of how other companies that are in the index are decided upon or weighted within the index. Companies can either be large, small, or medium and this refers to the size of the company, by the size we mean its market capitalisation.

Every company trade at a price on the exchange and its market capitalisation will be the function of multiplying the price and the number of shares the company has in issue. There are some interesting technicalities about the number of shares that investors are allowed to trade, so they strike out things like strategic shareholders that are not actively trading those shares to get a free float. The market price multiplied by the shares will determine how large a company is according to its market capitalisation. The larger a company the higher the weight it will have in the index. The Citrix emerging markets index consists of companies from developing countries like China, South Africa, Brazil, and more. China makes up about Thirty-Eight per cent of the index.

South Africa is only the Sixth largest country, the Second is Taiwan, the Third is South Korea, the Fourth is India, and the Fifth is Brazil. Within emerging markets, South Africa is only about less than Four per cent of the emerging markets universe, and collectively South Africa versus developed and emerging makes up only half a per cent of the entire opportunity set. The index that Citrix tracks within the ETF includes small-cap stocks as well. You can get an index that consists of four thousand stocks that you can have exposure to, which provides an enormous opportunity set. This ETF provides an investor with an opportunity that comes with investing in emerging markets without having to explore some unknown brands, which could offer great potential for your portfolio.

One feature that is quite telling within an emerging market context is that the risk between the different countries and the investment opportunities between different countries are quite stacked within an emerging market context. There tends to be less variation in performance between the MSCI developed markets but a lot more variation in performance across emerging markets and that's because they have unique social economic and political issues amongst themselves. An important point for investing is that for every risk there needs to be a reward, so if one was to take the additional risk of trading in emerging markets which have social economic and political risks they would expect to be compensated for the risk. Therefore, emerging markets have a unique role to play in constructing a portfolio.

The emerging markets are most suitable for investors who are seeking more risk. As larger developed markets are relative to emerging markets eighty-six per cent of the world population live in emerging markets countries. From a GDP perspective, they represent the majority of global GDP, yet such a tiny portion of investable opportunity set, and this shows us the potential growth that exists in the developing markets versus the developed markets. For example, South Africa as an emerging market has outperformed most of the developed markets but the gap has been significantly closed in the last ten to twelve years due to quantitative easing. Over the last ten years, the developed markets have delivered around ten and a half per cent per annum whereas emerging markets have delivered about four and a half per cent per annum.

The GDP of developing countries has been over five per cent per year versus that of developed markets of two per cent per year, so emerging market economies are growing a lot faster on the ground, it is just that it's not reflected in their stock market valuation yet. Since the shocks are starting to deteriorate, we will likely be starting to see the growth in the emerging markets becoming evident. in the article discussing and 80's that would like to think of as an underdog, we will be talking about the cent emerging market emerging markets means economies or companies that don't necessarily always get the limelight so they are not there are companies that you hear about on the news a lot this account reason companies that kind of fly under the radar but they may have quite a bit of failure to offer for your portfolios.

In general, emerging markets would essentially be quiet undervalued as opposed to the mainstream companies and shares if we rewind to the beginning of the 2021 the expectation amongst market participants was very much that emerging markets were said to do very well when outperform broader markets such as the developed markets the reason for that is because they develop markets have done really well over quite a large number of years since the financial crisis back in 2008 and that's really off the back of quantitative easing quantitative easing the process where central banks stimulated the economy it was led by the US and you have seen it play out in Europe and the UK as well that have really favour that develop markets and often at the expense of emerging markets emerging markets were expected to do very well in 2021 and beyond but the impact of coffee to a steel taking a toll on their recovery for example South Africa is an emerging market it fits in the classification of growing economies that are still not quite at the level of their developed markets peers and we have some countries like South Africa it took a bit longer for them to roll out their vaccine program and in the development as things were progressed more efficiently and quicker although that does not change the fundamentals of what emerging markets represent as a growth opportunity. Thanks for reading and good luck.


There are some interesting technicalities about the number of shares that investors are allowed to trade


imgaza youtube

Profitable trading recommendations, forex analytics for beginners traders

Subscribe our channel

top authors

Fundamental analyst

Stan Zabar
Fundamental analyst

Head of Analysis Department

Michael Wallenberg
Head of Analysis Department

Economic Observer

Alan Dofine
Economic Observer

Call US Feedback
en de nl fr pt es it uk zh ko ja ar ru pl tr