Barclays "envision further EM FX..............>

FOREX: Barclays "envision further EM FX underperformance relative to DM despite

last week's relief rally. The sharp fall in the CNY, which has had spill over

effect on regional currencies, has driven a wider performance gap between the

two groups. While the TRY and MXN have stabilized after elections and not added

to the DM-EM divergence, we think further weakness ahead is likely given policy

uncertainties and external vulnerabilities. Broadly, we believe that the

headwinds that caused the EM sell-off in Q2, such as rising trade

protectionism1, decelerating growth, inflationary concerns from FX weakness and

the competition for global savings from higher returns on US assets, are likely

to persist. In contrast, G10 currencies largely muddle through in our forecasts

in a strong USD environment, although idiosyncratic domestic developments and

differing reactions to risk aversion means differentiated expected performances

within the group."