Gems Fi & Fx Strategy Watch

This report examines the decoupling of nominal and real exchange rates in emerging markets following an oil-driven inflation shock. It highlights that while an AI capex boom provides structural support for Northeast Asian current accounts, it also introduces specific volatility risks.

Key Takeaways

• 1.Inflation is decoupling real exchange rates from nominal rates, with REER appreciation often exceeding nominal FX moves in EM.
• 2.An AI-driven export boom is boosting current account surpluses in Northeast Asia, providing currency support but increasing vulnerability to potential sector corrections.
• 3.Asian currencies such as INR, IDR, and KRW currently screen as undervalued, whereas CEEMEA and LatAm FX valuations appear increasingly stretched.

Table of Contents

• The real, the nominal and the artificial
• Glossary of Acronyms
• Inflation dynamics drive real exchange rate divergence
• REER valuations remain divergent
• It's no longer just about FX
• Real shocks meet AI surprises
• AI bubble risks cloud over EM FX

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