Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>In line with my view that the dollar remains strong in the near term, one of the trading strategies that I have suggested is relative-value trades within EM currencies.</li>
<li>The volatility of EM currencies continues to rise, which in theory is supportive of relative-value trades as such environments are usually accompanied by wide dispersion among EM currencies. </li>
<li>However, I find that cross-correlations among EM currencies have risen, leading to a narrowing of dispersion between them, which means the environment is no longer supportive of relative-value trades.</li>
</ul>


In line with my view that the dollar remains strong in the near term, one of the trading strategies that I have suggested is relative-value trades within EM currencies.
The volatility of EM currencies continues to rise, which in theory is supportive of relative-value trades as such environments are usually accompanied by wide dispersion among EM currencies. 
However, I find that cross-correlations among EM currencies have risen, leading to a narrowing of dispersion between them, which means the environment is no longer supportive of relative-value trades.


Is the Environment Supportive of EM FX Relative-Value Trades?

<ul>
<li>In line with my view of the dollar remains strong in the near term, one of the trading strategies that I have suggested hedging an EMFX portfolio with the euro.</li>
<li>I show that the hedge has performed well by breaking down and comparing the return of the hedged portfolio with the unhedged version.</li>
<li>For me to recommend taking off the euro hedge, we would need to see the volatility of US rates and the probability of recession falling. </li>
</ul>


In line with my view of the dollar remains strong in the near term, one of the trading strategies that I have suggested hedging an EMFX portfolio with the euro.
I show that the hedge has performed well by breaking down and comparing the return of the hedged portfolio with the unhedged version.
For me to recommend taking off the euro hedge, we would need to see the volatility of US rates and the probability of recession falling. 


How Well Is Hedging EM Currencies with the Euro Working?

<ul>
<li>As the US dollar approaches its highest level in a decade in line with my expectation, I reiterate my view of the dollar remaining strong in the near term.</li>
<li>The dollar spike coincides with the rise in US rates volatility, which makes sense as the market is trapped between Fed tightening and risk aversion arising from rising recession probability.</li>
<li>As the year progresses, I expect the dollar to weaken and the environment to turn supportive of EM currencies. Until then, I recommend relative-value trades and hedging with the euro.</li>
</ul>


As the US dollar approaches its highest level in a decade in line with my expectation, I reiterate my view of the dollar remaining strong in the near term.
The dollar spike coincides with the rise in US rates volatility, which makes sense as the market is trapped between Fed tightening and risk aversion arising from rising recession probability.
As the year progresses, I expect the dollar to weaken and the environment to turn supportive of EM currencies. Until then, I recommend relative-value trades and hedging with the euro.


Revisiting the US Dollar View and Its Implications for EM Currencies

<ul>
<li>The Chilean peso has performed well this year but it has still lagged behind its peers and the broad EM currencies on a longer horizon.</li>
<li>The currency has been weighed down by high oil prices, a dovish turn by the central bank, and concerns around the Constitutional Convention and the possibility of new pension withdrawals.</li>
<li>While these concerns are valid, my view is that the currency should outperform, albeit with high volatility, due to its high carry, cheap valuations, and eventually, diminishing political noise.</li>
</ul>


The Chilean peso has performed well this year but it has still lagged behind its peers and the broad EM currencies on a longer horizon.
The currency has been weighed down by high oil prices, a dovish turn by the central bank, and concerns around the Constitutional Convention and the possibility of new pension withdrawals.
While these concerns are valid, my view is that the currency should outperform, albeit with high volatility, due to its high carry, cheap valuations, and eventually, diminishing political noise.


Chilean Peso Is a Buy if One Can Stomach the Volatility

<ul>
<li>Given the current uncertainties stemming from the Fed monetary tightening and Russia's invasion, trading opportunities are creeping up as short-term mispricing tend to occur in such environments.</li>
<li>One such opportunity could be the South African rand, which has outperformed on a year-to-date basis relative to other emerging market currencies.</li>
<li>I see headwinds for the rand: the carry is low in real terms and versus volatility, the current account is set to deteriorate, growth remains a concern and it's expensive.</li>
</ul>


Given the current uncertainties stemming from the Fed monetary tightening and Russia's invasion, trading opportunities are creeping up as short-term mispricing tend to occur in such environments.
One such opportunity could be the South African rand, which has outperformed on a year-to-date basis relative to other emerging market currencies.
I see headwinds for the rand: the carry is low in real terms and versus volatility, the current account is set to deteriorate, growth remains a concern and it's expensive.


South African Rand’s Outperformance Is Overdone

Poland

The Polish Zloty dollar is the official currency of Poland

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Is the Environment Supportive of EM FX Relative-Value Trades?

The rise in the volatility of EM currencies should in theory be supportive of relative-value trades, but of late, the dispersion between them is...

Gautam Jain, PhD, CFA

How Well Is Hedging EM Currencies with the Euro Working?

I go over the performance of one of the trading strategies that I have suggested in line with my view of the dollar remaining strong in the near...

Gautam Jain, PhD, CFA

Revisiting the US Dollar View and Its Implications for EM Currencies

As the US dollar approaches its highest level in a decade, I reiterate my view of the dollar remaining strong in the near term. As the year...

Gautam Jain, PhD, CFA

Chilean Peso Is a Buy if One Can Stomach the Volatility

The Chilean peso should outperform in the coming months, albeit with high volatility, due to its high carry, cheap valuations, and eventually,...

Gautam Jain, PhD, CFA

South African Rand’s Outperformance Is Overdone

I see headwinds for the South African rand: the carry is not attractive in real terms or relative to volatility, the current account is set to...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)