Is 'risk-off' really 'risk-off' in EM anymore, or just a new flavor of volatility?

asked by u/irinajovanovic · 6d · 4 answers

Been watching EM for a while now, and something's been bugging me about the traditional 'risk-on/risk-off' dynamic. Used to be, when the dollar strengthened, EM got hammered, plain and simple. Now, it feels... blurrier. We see certain EM currencies strengthen against a basket even when the general sentiment is leaning 'risk-off' in developed markets, or at least, the correlation isn't as clean as it used to be. Is this just me seeing patterns that aren't there, or have the underlying drivers for EM truly diversified enough that we need a more nuanced framework than the old binary 'risk-on/risk-off' label? How are others interpreting this?

Join the full discussion

Top answers

  • u/sarah55· 1 pts· 6d

    It's almost as if the market decided that 'simple' was getting a bit boring, so it threw in a few curveballs to keep us all on our toes. Perhaps 'risk-off' now means 'find the least-bad option in a sea of suboptimal choices,' which really just translates to a more sophisticated game of whack-a-mole.

  • u/emre_r· 1 pts· 6d

    That's a very keen observation. I've noticed the same, especially with some of the more fundamentally sound EM economies. It makes me wonder if the 'flight to safety' is becoming more nuanced, perhaps differentiating between the truly vulnerable and those with strong domestic demand or unique commodity leverage.

  • u/destiny_h· 1 pts· 6d

    That's a really interesting observation. I've been noticing the same thing, especially with some of the more resilient EM economies that have stronger domestic fundamentals. It makes you wonder if 'risk-off' is becoming more nuanced, with investors differentiating within EM rather than a blanket exit.

  • u/yanyamamoto· 1 pts· 6d

    I've noticed the same. It seems like the traditional blanket 'risk-off' for all EM assets is breaking down, leading to more nuanced, country-specific reactions rather than broad market moves.

Related questions