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Overall, Argentina is not the economy we follow that closely; however, as concerns Brazil, we have seen quite a large rally in Brazilian assets on expectations that Rousseff is going to be impeached. At the current moment, the question is that if she does go, who is going to replace her, and whether the person who replaces her is going to be in a better position or more keen to address the problems in predominantly fiscal terms of cutting expenditure in order to reduce budget deficit. Thus, I think that the situation is far from clear at the moment, assuming that a lot of a rally we have had in Brazilian assets is probably going to take a pause for the next few months until we get some clarity on what is really going to happen.
Mexico showed quite encouraging economic performance in the Q1. Nevertheless, the long-term outlook for the country has remained pessimistic so far. In your opinion, has Mexico's economy reached its resistance level, or should we expect it to surprise us more this year?
To my mind, the problem with Mexico is that they instituted a large number of reforms both in oil extraction and energy supply industry and mobile telecommunications. While all these reforms are potentially very positive for growth in the country, unfortunately, the government have had the bad luck implementing these changes at the time of low oil prices. Nevertheless, I assume that these reforms are going to have a positive impact on growth in the years to come, so we would expect a slight pickup in Mexico's economic performance over the next few years.
What performance do you expect to see from the emerging currencies in case the Fed hikes rates on its next meeting in June and what currency in the emerging markets might be hit the most by the Fed's decision?
The first thing is that at the moment, the markets are pretty much convinced that Fed is not going to hike in June; we do not expect it happening either. However, a scenario where the Fed lifts rates as soon as the next month would be a surprise for the markets and would definitely have a negative impact on emerging currencies. Meanwhile, our central scenario for the time being is that we do not expect the Fed to raise rates at least until September; thus, we are quite positive on the emerging market currencies.
Talking about the currencies that might be hit by the Fed's decision, we have been negative on the Turkish Lira and the South African Rand so far.
As concerns the other currencies, it is now difficult to say whether the Brazilian Real will perform worse, because it depends a lot on what is going on in the domestic scene, while we definitely see the Asian currencies weaken against the US Dollar.