Latest news with #LemonZhang
Business Times
04-08-2025
- Business
- Business Times
Emerging market funds adjust bets as ‘sell the dollar' trade loses appeal
THE US dollar's bounceback in July is convincing some emerging market investors to bet that it will keep rising in coming months. T Rowe Price Group says it now favours US dollar-denominated emerging market bonds rather than local-currency ones as a tactical trade. Barclays is telling its clients to avoid shorting the greenback versus its Asian peers, while Fidelity International says the higher-for-longer US interest rates make it less attractive to borrow the US dollar to fund carry trades. Fund managers and analysts alike are reappraising the 'sell the dollar' trade as the greenback's revival sapped some of the optimism towards developing-nation assets. Bets that the US dollar would continue to fall pushed the MSCI emerging market equity index to a more than three-year high last month, and a similar gauge of currencies to a sixth monthly gain in June. 'I'm weighted towards' US dollar-denominated emerging market bonds for now, given their attractive coupons, said Leonard Kwan, a fund manager at T Rowe Price in Hong Kong. There is likely to be a 'consolidative period for the dollar over the next three-to-six months', which will challenge the returns from local currency debt, he added. Emerging market US dollar bonds outperformed their local currency counterparts last month, with a Bloomberg gauge of the securities returning 0.9 per cent, while one measuring local currency debt fell by the same amount. A similar trend was seen in currencies. Bloomberg's US dollar spot index climbed 2.7 per cent in July, snapping a six-month losing streak, while MSCI's emerging markets currency index fell 1.2 per cent. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The greenback tumbled last Friday (Aug 1) after soft US jobs data prompted traders to boost bets that the Federal Reserve will cut rates as soon as next month. The currency stabilised on Monday, with Bloomberg's gauge of the currency being little changed. Long dollar 'We remain reluctant to jump into outright' trades betting the US dollar will weaken against Asian currencies into the summer, Barclays strategists including Lemon Zhang wrote in a Jul 24 note. 'Instead, we have recommended going long the US dollar against some low yielders in the region with stretched valuations and idiosyncratic risks,' such as the baht and Hong Kong dollar, they said. Barclays also favours what it calls relative-value trades that avoid the US dollar altogether – such as betting that the Singapore dollar will weaken against its Chinese counterpart, and going short the baht versus the won. Carry trades Investors who have been using the US dollar as a funding currency for carry trades may also want to seek other options, according to Fidelity. Carry trades involve borrowing in a currency with relatively low interest rates and investing in another offering higher returns. 'Given that US dollar interest rates may remain relatively higher for some time, it may be worth considering alternative funding currencies that offer lower costs while maintaining similar risk profiles,' said Lei Zhu, head of Asian fixed income at Fidelity in Hong Kong. Possibilities include borrowing in the Hong Kong dollar, which has lower short-term fund rates than the greenback, or even the yuan, she said. Meanwhile, the US dollar's revival in July is making it cheaper for Asian funds to hedge their holdings of greenback-denominated assets. The aggregate hedging cost for local currency funds, as measured by US dollar-Asia forward implied yields from eight economies and the equivalent US secured overnight refinancing rate, fell five percentage points last month, the first drop this year, data compiled by Bloomberg show. 'With the dollar strengthening again, unhedged or underhedged entities may view this as an opportunity to reduce their US dollar foreign-exchange exposure and to rebalance their positions,' Fidelity's Zhu said. What to watch
Mint
03-08-2025
- Business
- Mint
EM Funds Adjust Bets as ‘Sell the Dollar' Trade Loses Appeal
(Bloomberg) -- The dollar's bounceback in July is convincing some emerging-market investors to bet it will keep rising in coming months. T. Rowe Price Group Inc. says it now favors dollar-denominated emerging market bonds rather than local-currency ones as a tactical trade. Barclays Plc is telling its clients to avoid shorting the greenback versus its Asian peers, while Fidelity International says the higher-for-longer US interest rates make it less attractive to borrow the dollar to fund carry trades. Fund managers and analysts alike are reappraising the 'Sell the Dollar' trade as the greenback's revival sapped some of the optimism toward developing-nation assets. Bets the dollar would continue to fall pushed the MSCI emerging-market equity index to a more than three-year high last month, and a similar gauge of currencies to a sixth monthly gain in June. 'I'm weighted towards' dollar-denominated emerging-market bonds for now, given their attractive coupons, said Leonard Kwan, a fund manager at T. Rowe Price in Hong Kong. There's likely to be a 'consolidative period for the dollar over the next three-to-six months,' which will challenge the returns from local-currency debt, he said. Emerging-market dollar bonds handily outperformed their local-currency counterparts last month, with a Bloomberg gauge of the securities returning 0.9%, while one measuring local-currency debt fell by the same amount. A similar trend was seen in currencies. Bloomberg's dollar spot index climbed 2.7% in July, snapping a six-month losing streak, while MSCI's emerging-markets currency index fell 1.2%. On Friday, the greenback tumbled after soft US jobs data prompted traders to boost bets that the Federal Reserve will cut rates as soon as next month. The dollar gauge still gained 1% for the week, its best since November. 'We remain reluctant to jump into outright' trades betting the dollar will weaken against Asian currencies into the summer, Barclays strategists including Lemon Zhang wrote in July 24 note. 'Instead, we have recommended going long the US dollar against some low yielders in the region with stretched valuations and idiosyncratic risks,' such as the Thai baht and Hong Kong dollar, they said. Barclays also favors what it calls relative-value trades that avoid the dollar altogether — such as betting the Singapore dollar will weaken against its Chinese counterpart, and going short the baht versus the South Korean won. Investors who have been using the dollar as a funding currency for carry trades may also want to seek other options, according to Fidelity. Carry trades involve borrowing in a currency with relatively low interest rates and investing in another offering higher returns. 'Given that US dollar interest rates may remain relatively higher for some time, it may be worth considering alternative funding currencies that offer lower costs while maintaining similar risk profiles,' said Lei Zhu, head of Asian fixed income at Fidelity in Hong Kong. Possibilities include borrowing in the Hong Kong dollar, which has lower short-term fund rates than the greenback, or even the Chinese yuan, she said. Meanwhile, the dollar's revival in July is making it cheaper for Asian funds to hedge their holdings of greenback-denominated assets. The aggregate hedging cost for local-currency funds, as measured by dollar-Asia forward implied yields from eight economies and the equivalent US secured overnight refinancing rate, fell five percentage points last month, the first drop this year, data compiled by Bloomberg show. 'With the dollar strengthening again, unhedged or underhedged entities may view this as an opportunity to reduce their US dollar foreign-exchange exposure and to rebalance their positions,' Fidelity's Zhu said. --With assistance from Matthew Burgess and Malavika Kaur Makol. More stories like this are available on
Business Recorder
01-07-2025
- Business
- Business Recorder
Asian currencies: Taiwan dollar drops sharply
BENGALURU: Taiwan dollar fell sharply on Monday after a month of strong gains, stoking market talk about intervention by the central bank, while other regional peers edged higher, topping off a June shaped by geopolitical uncertainty and a softer dollar. The Taiwan dollar fell 2.4% to 29.902 per US dollar towards the end of the trading day after surging last week to its highest level since April 2022. The central bank aggressively intervened to sell the Taiwan dollar at the end of the second quarter, three bank traders told Reuters. 'TWD rally was a function of Taiwan lifers adding FX hedges, carry trade unwinding and strong equity inflows,' said Lemon Zhang, FX & EM macro strategist at Barclays, noting the move higher for the Taiwan dollar had been fast. 'We think near-term USDTWD should see limited downside, unless (there is a) substantial DXY move lower from here.' Other regional currencies were supported on Monday by a subdued dollar index, with markets watching US President Donald Trump's massive tax-cut and spending bill, now before the Senate. Among the gainers, the Malaysian ringgit rose 0.3%, while the Philippine peso and Thai baht gained 0.4% each. The South Korean won climbed 0.6%. Most Asian currencies held up despite global headwinds. In the first half of 2025, markets were jolted by Trump's sweeping tariffs on April 2 and the tariff policy flip-flops thereafter. An escalating US-China trade war also roiled markets, before the trade rivals struck a deal that lowered duties sharply and opened up rare earth exports from China. In June, a 12-day war between Israel and Iran sent oil prices higher, even as renewed concerns over the Federal Reserve's independence kept markets on edge.
Business Recorder
19-05-2025
- Business
- Business Recorder
Yuan firms on better sentiment
SHANGHAI: China's yuan firmed against the US dollar on Friday, underpinned by a broadly weaker greenback and improved sentiment following a Sino-US tariff truce, as traders kept a close eye on the daily fixing for clues on Beijing's currency stance. The dollar fell in tandem with US Treasury yields on Friday after downside surprises on US economic data this week cemented bets of more Federal Reserve rate cuts this year. Also supporting yuan sentiment, a slew of investment banks including Citi and UBS raised their China GDP forecasts for 2025 after the world's two largest countries agreed to a 90-day deal to slash reciprocal tariffs in a substantial de-escalation of a potentially damaging trade war. 'Buoyed by market optimism driven by tariff developments, the yuan may remain strong against the US dollar for much of the time in the short term,' said analysts at Nanhua Futures. But once the sentiment fades, the yuan is likely to resume two-way fluctuations, they said. Prior to the market opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1938 per dollar, 147 pips firmer than a Reuters' estimate. The PBOC has set the yuan's daily fixings much closer to Reuters estimates this week than in the past six months, significantly narrowing the gap — a move viewed as an effort to avoid rapid gains in the currency. Lemon Zhang, a strategist at Barclays, said the fixes suggested the PBOC was trying to avoid a repeat of the recent sharp moves seen in the Taiwan dollar. Bullish bets on the Taiwan dollar surged to their highest since late 2020 after the currency posted its steepest one-day gain in nearly four decades last week, as traders wagered Taipei might permit appreciation to smooth trade relations with Washington. The spot yuan opened at 7.2037 per dollar and was last trading at 7.2020 as of 0259 GMT, 47 pips firmer than the previous late session close and 0.11% weaker than the midpoint.
Business Recorder
16-05-2025
- Business
- Business Recorder
China's yuan firms on better sentiment, currency guidance eyed
SHANGHAI: China's yuan firmed against the US dollar on Friday, underpinned by a broadly weaker greenback and improved sentiment following a Sino-US tariff truce, as traders kept a close eye on the daily fixing for clues on Beijing's currency stance. The dollar fell in tandem with US Treasury yields on Friday after downside surprises on US economic data this week cemented bets of more Federal Reserve rate cuts this year. Also supporting yuan sentiment, a slew of investment banks including Citi and UBS raised their China GDP forecasts for 2025 after the world's two largest countries agreed to a 90-day deal to slash reciprocal tariffs in a substantial de-escalation of a potentially damaging trade war. Yuan wobbles near 2-week low on tariff, growth concerns 'Buoyed by market optimism driven by tariff developments, the yuan may remain strong against the US dollar for much of the time in the short term,' said analysts at Nanhua Futures. But once the sentiment fades, the yuan is likely to resume two-way fluctuations, they said. Prior to the market opening, the People's Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1938 per dollar, 147 pips firmer than a Reuters' estimate. The PBOC has set the yuan's daily fixings much closer to Reuters estimates this week than in the past six months, significantly narrowing the gap — a move viewed as an effort to avoid rapid gains in the currency. Lemon Zhang, a strategist at Barclays, said the fixes suggested the PBOC was trying to avoid a repeat of the recent sharp moves seen in the Taiwan dollar. Bullish bets on the Taiwan dollar surged to their highest since late 2020 after the currency posted its steepest one-day gain in nearly four decades last week, as traders wagered Taipei might permit appreciation to smooth trade relations with Washington. The spot yuan opened at 7.2037 per dollar and was last trading at 7.2020 as of 0259 GMT, 47 pips firmer than the previous late session close and 0.11% weaker than the midpoint. Zhang estimated that as much as $100 billion in corporate conversion flows from exporters could be triggered if the offshore yuan strengthens beyond the 7.10–7.15 range, a move she said could pave the way for a rapid shift toward 7.00. The offshore yuan traded at 7.1992 yuan per dollar, up about 0.09% in Asian trade. The dollar's six-currency index was 0.099% lower at 100.67.
