The "slap in the face" lessons of the past four weeks: bearish on emerging market currencies due to tariffs
After the announcement of the tariff policy on April 2, JP Morgan advised its clients to short emerging market currencies. However, since then, emerging market currencies unexpectedly strengthened, and JP Morgan had to admit that its "bearish strategy" did not work, raising its position on Asian currencies from "underweight" to "overweight."
Misjudging the trend of emerging market currencies, JP Morgan's "bearish" strategy has failed.
On April 2, the day Trump announced the tariff policy, JP Morgan made a trading suggestion to its clients: short emerging market currencies; however, nearly a month later, faced with the unexpectedly resilient performance of most emerging markets, this Wall Street giant is changing its stance.
On Friday, JP Morgan strategists stated in a report:
"Our downgrade recommendation has not worked, and we see ample reason to believe that emerging market currencies will not weaken against the dollar in the near future."
JP Morgan is not the only institution that previously predicted tariffs would exacerbate pressure on emerging markets. In early April, Morgan Stanley also told its clients to increase short positions on emerging currencies. They both underestimated the speed at which investors were pulling out of U.S. assets and the impact of the suspension of Trump's tariff policy.
However, since April 2, emerging market currencies have unexpectedly strengthened, with the MSCI Emerging Market Currency Index rising by 3%. Recently, driven by optimistic expectations for trade agreements, the New Taiwan Dollar has recorded its largest increase since the late 1980s.
Due to the strong performance of emerging market currencies, JP Morgan strategists have upgraded their stance on Asian currencies from "underweight" to "overweight," expressing optimism towards currencies like the Malaysian Ringgit
