Investors are sticking with emerging-market carry trades, even after a rare quarterly loss, betting the strategy will be able to weather Treasury yields at multi-decade highs. Ninety One Ltd., Generali Asset Management SpA and William Blair BV are among the money managers who see last quarter’s loss — the first in two years — as just a hiccup for dollar-based carry trades.
That’s because the strategy — borrowing dollars to buy higher-yielding assets in the developing world — hinges above all on a stable greenback, and investors are not convinced its recent bounce will extend. After six straight quarters of gains, the trade lost money last month in 16 of the 20 most popular currencies.
“High US yields are not necessarily fatal for EM carry,” said Yvette Babb, a portfolio manager at William Blair. “The recent setback in EM carry is more likely to prove a reset in positioning than the start of a wholesale unwind.”
“What matters the most is the USD,” said Guillaume Tresca, a strategist at Generali Asset Management. “It acts as a shock amplifier. If rates stay high but USD is OK, carry trade can still perform.”
Source: Bloomberg Markets · Summarized by HeadlinesBriefing