INSUBCONTINENT EXCLUSIVE:
NEW YORK: Traders who braved the rout in emerging markets in search of higher returns are suddenly reaping the rewards.
A Bloomberg currency
index that measures carrytrade returns from eight emerging markets funded by short positions in the dollar has gained 3.2 per cent in
If it stays that way, it will be the best month since January.
Carry trades were upended earlier this year as the dollar strengthened and
concerns over a protracted trade war rattled markets
But now the slide in the price of oil and growing speculation that the Federal Reserve may slow the pace of interest-rate increases next
year have rekindled investor interest in the most beatendown assets.
“Some of the superb carries are looking increasingly attractive on
this subtle shift in Fed narrative alone,” said Stephen Innes, head of trading for Asia-Pacific at Oanda Corp
It “brings back some yield appeal to the beleaguered EM carry trade.”
The South African rand, Turkish lira, Indonesian rupiah and Indian
rupee — among this year’s hardesthit currencies through September — have led the advance this month
Chile’s peso is also among the biggest gainers, though it isn’t included in Bloomberg’s carry-trade index.
There’s still a potential
black spot on the horizon, should President Donald Trump fail to cut a trade deal with China at the Group of 20 summit in Argentina next
week.
“Asian currencies could react negatively if US talks with China were to break down,” said Maximillian Lin, an emerging-markets
strategist at NatWest in Singapore.
