The positive EM sentiment continued in October...

• October has brought another Fed cut, continued USD weakness, and surging commodity prices. The positive Emerging Markets (EM) sentiment we saw in September has carried on into October as most EM currencies have moved more strongly and local equity markets have set new records.
• Higher commodity prices have indeed supported external balances in those countries that are net-exporters of commodities, and have thus stimulated the respective currencies. In particular the Latin American region has benefited from this.

...But how will authorities react to higher inflation?

• There are good reasons to believe that Asia will continue to look very strong. While this naturally should support performance in those markets, it also adds to an increased probability of event risks - eg, local authorities may consider imposing capital restrictions.
• We expect CEE currencies to outperform EUR, and major LATAM currencies to outperform USD. But one should not forget that chances of more negative events can hit the markets - mainly from the financial sector, but also from a less positive outlook for US growth.