JPMorgan Chase & Co. has moved its tactical stance on emerging-market foreign exchange to overweight for the back half of the year, signaling a preference for currencies offering higher yields and those where monetary authorities appear ready to respond to strengthening growth and inflation with tighter policy.
In a note distributed to clients, strategists including Luis Oganes said the bank also has an appetite for frontier market currencies. The firm shifted its regional allocations such that Latin American and EMEA FX are now overweight, while Asia remains an underweight exposure.
Within EMEA, JPMorgan upgraded the region to overweight and explicitly turned positive on the Czech koruna and the South African rand. In Latin America, the bank elevated Chile's peso to an overweight position. Conversely, Brazil's real was downgraded to marketweight - a move the strategists attributed to heightened political noise and the existence of a crowded position in that currency.
The strategists described the portfolio orientation as pro-carry, meaning it favors currencies that offer higher interest differentials to investors. However, they noted the portfolio is not static; allocations are rotated toward currencies where central banks are demonstrably shifting toward more hawkish policy settings.
Alongside the FX recommendations, JPMorgan held its view on local interest rates and on sovereign and corporate credit at neutral. The bank explained that prevailing valuations in those markets do not present a clearly attractive risk-reward profile, and therefore it is not taking directional bets in rates or credit at this time.
Context and positioning
JPMorgan's move to overweight emerging-market currencies reflects two primary tilts articulated by the strategists: a bias toward carry-generating currencies and a preference for jurisdictions where central banks are prepared to tighten policy if economic conditions warrant. The bank's regional decisions - increasing exposure to Latin America and EMEA, while reducing exposure to Asia - follow directly from those criteria.
Execution notes
- EM FX recommendation: upgraded to overweight for H2.
- Regional stance: overweight on Latin America and EMEA; underweight on Asia.
- Specific currency moves: positive on Czech koruna and South African rand; Chilean peso moved to overweight; Brazilian real downgraded to marketweight due to political noise and crowded positioning.
- Credit and rates: neutral on local rates and on sovereign and corporate credit because valuations do not offer clear risk-reward.