Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

Dollar Worries For Emerging Markets Trade

Published 03/07/2019, 11:05 PM
Updated 07/09/2023, 06:31 AM

Good chart from Gary Morrow at “This Week on Wall Street”.

Dollar Driving Higher

On Invesco’s website it’s noted that the top three foreign currency forwards for the UUP (NYSE:UUP) are:

  • Euro: 58%
  • Yen: 14%
  • Pound: 12%

So as the EUR/USD goes, so goes the UUP.

Summary / conclusion: The U.S. dollar is in one of its longest stretches of bull runs per Bloomberg, which noted yesterday that the greenback is experiencing its 3rd longest bullish run in history. The Emerging Markets trade became popular early in 2018, so maybe this will take the bullish enthusiasm off the trade, but I still like EM’s and the EM trade over the next few years.

China’s recent tax cuts and their dealing with some of their trade policies will help too. China is still the second largest EM and thus could counteract the strong dollar influence.

Client’s emerging markets weighting was lifted in Q4 ’18 as the EEM (NYSE:EEM) and VWO (NYSE:VWO) started to outperform the S&P 500 at the end of October ’18, although both EM ETF’s have now underperformed in 2019.

The three vehicles being used to play the trade are the EEM, VWO and the Oakmark International Fund. David Herro is an excellent manager although he had a tough 2018, but you have to buy his fund and the asset class when its out of favor.

Client allocations are roughly 5% – 10% EEM/VWO and then OAKIX is used to get the weighting to the 10% – 15% range.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

The U.S. dollar has been in a trading range for a few years. The UUP is still below its late 2016 high although both the Dollar index and the UUP are close to all-time-highs.

Being patient for now. The race to the bottom for the completely spineless ECB drove dollar strength today.

I would not like to see the DXY or Dollar index make an all-time-high.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.