Examining emerging market currencies
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Merrill Lynch's research on emerging market (EM) currencies opposes that of most valuation models. While many of these models find EM currencies to be expensive, the bank's EM FX Compass model indicates that most are undervalued. Out of 16 currencies analysed, 12 are undervalued against the USD, by an average of 19%.
The main reason for this discrepancy is that valuation models often measure the level of nominal or real effective exchange rates (REER) against historical values adjusted by
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