Markets

EM carry trade returns set for best month since January

NEW YORK: Traders who braved the rout in emerging markets in search of higher returns are suddenly reaping the rewards.

A Bloomberg currency index that measures carrytrade returns from eight emerging markets funded by short positions in the dollar has gained 3.2 per cent in November so far. If it stays that way, it will be the best month since January.

Carry trades were upended earlier this year as the dollar strengthened and concerns over a protracted trade war rattled markets. But now the slide in the price of oil and growing speculation that the Federal Reserve may slow the pace of interest-rate increases next year have rekindled investor interest in the most beatendown assets.

“Some of the superb carries are looking increasingly attractive on this subtle shift in Fed narrative alone,” said Stephen Innes, head of trading for Asia-Pacific at Oanda Corp. in Singapore. It “brings back some yield appeal to the beleaguered EM carry trade.”

The South African rand, Turkish lira, Indonesian rupiah and Indian rupee — among this years hardesthit currencies through September — have led the advance this month. Chiles peso is also among the biggest gainers, though it isnt included in Bloombergs carry-trade index.

Theres still a potential black spot on the horizon, should President Donald Trump fail to cut a trade deal with China at the Group of 20 summit in Argentina next week.

“Asian currencies could react negatively if US talks with China were to break down,” said Maximillian Lin, an emerging-markets strategist at NatWest in Singapore.

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