JPMorgan Chase: Upgrades emerging market currency ratings, maintains overweight rating on Asian currencies

JP Morgan (JPMorgan Chase) on Friday upgraded its rating on emerging market currencies (EMFX) from "underweight" to "market-weight," citing a more optimistic outlook among investors regarding the possibility of tariff relief, while the dollar cycle may be undergoing a shift.

Media reports indicate that JP Morgan strategists, including Luis Oganes, wrote in a report sent to clients on Friday that the bank's previous underweight stance on emerging market currencies "has not worked," and they now believe there is sufficient reason to think that emerging market currencies will not continue to weaken against the dollar in the upcoming phase.

However, JP Morgan still maintains an underweight rating on emerging market sovereign and corporate bonds, as the current spreads are not sufficient to compensate for the higher recession risks.

The report noted that emerging market economic growth was boosted in the first half of the year due to companies stockpiling ahead of the tariffs, but is expected to slow significantly in the second half.

At the same time, JP Morgan maintains its judgment that the probability of a U.S. economic recession in the second half of 2025 is 60%, predicting that emerging market GDP growth will decline from 3.4% in the first half to 1.4% in the second half. JP Morgan has abandoned its previous bearish stance on Asian currencies.

JP Morgan also believes that the renminbi may remain stable for a longer period, which will support other regional currencies and act as a "ballast."

In terms of specific operations, JP Morgan maintains its short position on the Colombian peso (COP) and has ended its previous long recommendations on the Brazilian real (BRL) and Czech koruna (CZK) relative to the South Korean won (KRW) and Thai baht (THB)