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Investors in local currency EM debt risk a sharp dollar move

Stock MarketsApr 03, 2018 01:00PM ET
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© Reuters. Investors in local currency EM debt risk a sharp dollar move
  • Given strong performance over the last 12 months, investors have poured a total of $745B into EM local currency debt.
  • “Most people who invest in emerging local do so unhedged. Generally they tend to run the duration and currency risk,” says James Athey of Aberdeen.
  • The trade has generated 13% returns over the past year, and more than half these gains are from currency performance.
  • With the Fed unwinding its balance sheet and tightening monetary policy, the risks of a sudden reversal are rising, but the market still doesn't expect it.
  • “It’s never been this cheap to hedge against a sharp rise in the dollar.” said Damian Sassower of Bloomberg.
  • ETFs: UUP, EMB, PCY, EDF, UDN, EDI, TEI, EMLC, EDD, VWOB, EMD, ELD, USDU, MSD, GHI, LEMB
  • Now read: Money Flows, Market Structure Project Major Turnings Points In SPX, NDX, 10Y Yield, Gold, U.S. Dollar, High Yield, And Bitcoin


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Investors in local currency EM debt risk a sharp dollar move
 

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