(Bloomberg) -- Goldman Sachs' models are signaling that some developing-nation currencies have further to fall, even after a slide unprecedented since the financial crisis.
While this year’s sell-off has pushed emerging-market exchange rates into undervalued territory by at least one measure, they are not yet as cheap as in early 2016, analysts at the investment bank including Mark Ozerov and Kamakshya Trivedi note. Back then, the developing world was being battered by a slump in global oil prices.
Emerging-market currencies are extending losses this month as trade tensions heat up between the world’s two biggest economies and strong economic data from the U.S. increases chances of more interest-rate hikes.
The slump has made the Brazilian real , Mexican peso , South African rand and Russian ruble look cheap on a trade-weighted basis, according to Goldman analysts. Meanwhile, the Turkish lira has overshot the depreciation required by the country’s economic imbalances.
But not all EM currency valuations are flashing green.
The Colombian peso , Indian rupee and Indonesian rupiah turned out to be modestly overvalued according to a GSFEER model that takes into account the external and internal imbalances of their economies.
The analysts also weighed currencies on a GSDEER scale, which takes productivity and terms of trade differentials into account. By that measure, most emerging-market high-yielders are undervalued.
“Of course, valuations are best seen as a medium- to long-term signal for asset market performance, and are rarely a catalyst in and of themselves to spark stronger performance,” the analysts wrote. “Nevertheless a significant cheapening could provide an anchor point for investors who can take the long-term view and a buffer to weather any volatility.”
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.