Next year is drawing closer and people are starting to wonder how it will look. We believe that the emerging markets in general will experience another bumpy year with difficulties. There is a feeling of a lack of direction in global emerging markets. On the positive side, the US recovery should continue going into next year but the headwinds for emerging markets, such as the uncertain outlook for Chinese economy and commodity prices, will continue to be one of the main drivers for them next year. Furthermore, the crisis in Ukraine remains unresolved and tensions and fighting have recently re-escalated in Eastern Ukraine.
The relationship between Russia and the west has also cooled further. Indeed, the feeling of the world entering a new cold war scenario is becoming clearer to investors around the world. The escalating crisis - combined with sharply lower oil prices -- has hit the Russian markets and the Russian economy seems poised to fall even deeper into recession in coming months. Finally, deflation is becoming more visible in Europe and Eastern European countries are being hit by outright deflation. All these factors are reflected in our updated FX forecast for these currencies.
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