Last year, much commentary was on Emerging Market equity and currency declines. The Federal Reserve raised rates four times in 2018. A stronger dollar increases the burden of servicing dollar-denominated debt for Emerging Market companies and sovereigns. As the global economic recovery became more extended, investors became increasingly focused on identifying credit problems that may derail the recovery.
So far in 2019 the commentary has changed. The U.S. Federal Reserve is on pause, and there is a growing consensus that it will start cutting rates. As a sign of less risk aversion towards Emerging Market, Emerging Market currencies and equities have been recovering.
Below is a chart of Emerging Market real effective exchange rates valuations (which take into account trading partners and the movement of currencies) during their trough in 2018 and currently in 2019. Emerging market currencies in countries with substantial vulnerabilities, such as Turkey, have strengthened substantially from their valuation troughs in 2018.