JPMorgan Foresees Rise in Latin American Currencies if Biden Wins

RIO DE JANEIRO, BRAZIL – Latin American currencies should appreciate if Democrat Joe Biden wins the U.S. presidential election next month, as he is inclined to adopt more friendly international policies, according to U.S. banking giant JPMorgan Chase.

Currencies in the region could appreciate by an average of between five and ten percent in this scenario, depending on the markets’ pricing of the result, said Carlos Carranza, head of the bank’s New York-based local Latin American market strategy.

The exchange analysts in his team have been rated as the most accurate in the region in three of the last four quarters, according to data compiled by Bloomberg.

Carranza said a Donald Trump victory could lead to automatic depreciation, though only at an average of five percent. Trump’s reelection would likely mean more trade and immigration stress, he said.

The company recommends an overweight position in Latin American currencies as Biden leads the polls against Trump, raising the chances of a less dollar-focused government and a less confrontational approach to international issues, Carranza said.

Winners and losers

The MSCI index of emerging market currencies was close to break-even this year after dropping to a three-year low in March as the pandemic shut down cities.

Latin American currencies were among the worst performers in a pool of 24 developing countries monitored by Bloomberg.

The Mexican peso could be among the top beneficiaries of a Biden victory amid light positioning and cheap valuations, Carranza said. The Brazilian real could also win, given its beta trends, which often help the currency overshoot trends in the developing world, according to Carranza.

Meanwhile, the Colombian peso could lose out if a Biden government focuses on renewable energy and green policies, which would weigh on oil exporters.

Chile’s currency could gain momentum along the same lines as a copper exporter, a raw material used in solar and wind renewable energy. Nevertheless, Carranza expects an affirmative referendum, which would lead to a long process for rewriting the Constitution, maintaining the currency’s risk.

Source: Bloomberg