EM Fund managers to move to more exotic currencies, such as dollar hits lows

© Reuters. An employee counts Egyptian pound in the foreign exchange office in the center of Cairo

By Dion Rabouin

NEW YORK (Reuters) — Some of 2017’s top-performing emerging-market Fund managers are re-shuffled, your currency holdings, paring bets on some of the asset class’ big names and move to more exotic currencies such as the Czech Koruna, the Uruguayan peso and the Egyptian pound.

The dollar is not close bounceback in September, including his best week of the year, the month has changed managers, the underlying bearishness on the currency. The shift is for the feeling that the greenback is the remarkable slide against rivals such as the Mexican peso and the Brazilian real to a stop, the dollar bounced to a three-month high against the peso on Thursday — while other currencies are due for a rally.

Fund managers’ embrace of those less known and less liquid currencies is a sign that even in emerging markets, long considered an exotic and volatile area, to begin with, investors are pushing their risk profile. Could be either a savvy bet or irrational exuberance.


Data from research firm eVestment shows that bonds in the national currency and outright currency exposure is doubled in Uruguay, more than, from the second quarter of 2016 to the second quarter of 2017 long positions in the Czech Republic in local currency bonds rose to 44.9 percent from 11.4 percent during this period, and the share of investors in the currency of the exposure to the Czech Koruna has surged with 68.0 percent from 12.7 percent.

Investors with a currency exposure to Egypt, to 2.53 percent in the second quarter of 2016 45.3 percent in the same quarter of this year.

EVestment tracks the number of investors in the emerging markets local currency universe, the report that you own bonds or long exposure to the currency of the specified country.

Fund Manager, spoke with Reuters described a number of investment instruments including currency forwards, and bonds in local currency, and some government T-bills.

Leah Traub, partner and portfolio manager Abbett Lord said, your emerging market funds have recently received positions, «in some off-market-name», or other currencies outside of the JP Morgan emerging market diversified global bond index used as a benchmark, including Uruguay, Egypt, and India.

Your means some of the exposure of currencies correlated with the euro in the European emerging countries, such as Hungary and Poland, and Traub said, it is currencies in search of emerging-market currencies with a lower correlation with the developed markets.

«If there is any theme to it, it is just that much better global backdrop, can some of these rather idiosyncratic stories to unfold really,» she said in a telephone interview last week.

Andy Keirle, who manages T Rowe Price EM local currency bond fund, has also added positions in Egypt, as in the Sri Lanka rupee. At the same time, it reduces a long position in the Mexican peso, he took in the run-up to the US election.

Egypt has benefited to float by investors after the country the decision, its currency, and adopt a value-added tax and the reduction of energy subsidies as part of a loan package from the International monetary Fund. The IMF has called Egypt’s reforms «bold» and said the North African nation «gathering forces,» because the Fund is preparing to issue $ 12 billion loan, its third tranche in the package.

Jean-Dominique Bütikofer, Voya Investment Management head of emerging markets fixed income, said he is now in search of a relative-value trades, such as taking long positions on the Turkish lira against the South African rand.

«If it is said to the market cycle, we do not expect to sell in the market, but we have reached the peak of» Bütikofer. «You can stay at a high level and you can plateau for a long time The beauty of fixed income, including the local currency and prices, they have a decent coupon. So go defensive too early could cost you a lot of money.»

Bütikofer and others said they will watch closely next week’s IMF /world Bank meeting in Washington for clues as to the next possible catalyst for the global Fund flows.

While Fund managers diversify and some said, you take a little risk off the table after a profitable year 2017, so far — none of the 13 respondents said they expect to see, emerging-market currencies in bull run comes to an end soon.

«Historically, since the 1970s, dollars travelled cycles in a multi-year paths, so it would not be surprising, in a three-year, four-year cycle,» said Jim Barrineau, a portfolio manager and head of emerging markets debt at Schroders (LON:SDR).

The dollar index (DXY), which tracks the greenback against six major rival currencies of 103.82 fallen, from a peak on Jan. 2 until 2017 low of 91.15. But the index was as low as 79.52 as recently as 2014.

«It is hardly a collapse of the dollar,» Barrineau said. «Well, if history is any guide, we have more to go.»

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