Latest news with #Vontobel
Business Recorder
2 days ago
- Business
- Business Recorder
Weak dollar reprises its role as ‘carry' trade funder
MUMBAI: The U.S. dollar's weakness since the start of Donald Trump's presidency has made it the preferred funding currency for popular 'carry' trades, fuelling heavy flows into higher-yielding emerging market currencies. Dollar-funded carry trades in the Indonesian rupiah , Indian rupee , Brazilian real , Turkish lira among other currencies, are back in vogue, fund managers said. In a typical currency carry trade, investors use cheap-to-borrow currencies to fund investments in those with better yields. Returns are boosted if the borrowed currency weakens. The dollar, traditionally less favoured than the Japanese yen or Swiss franc for such trades, has become the funding currency of choice as Trump's trade war stokes recession worries and an investor retreat from U.S. Treasuries. Carl Vermassen, a portfolio manager at Zurich-based asset manager Vontobel, has added to carry trades on the rupee and rupiah. 'Emerging market local currency was basically shunned for the simple reason: to avoid local currency risk at a time of an almighty dollar,' he said. 'But, given most investors deem U.S. exceptionalism to have ended, things are changing.' Claudia Calich, head of emerging market debt at M&G Investments, also expects dollar weakness to persist and support carry trades. The London-headquartered fund oversees more than 312 billion pounds ($423.5 billion) and favours the rupee and Philippine peso for carry positions within Asia and the Brazilian real and Mexican peso in Latin America. Intra-day update: rupee strengthens against US dollar The more investors rush back into dollar carry trades, the deeper the dollar's losses are likely to be, analysts said. The dollar index has fallen 8.5% so far this year, dropping below the critical 100 mark in mid-April for the first time in nearly two years. It was last seen at 99.30. That means investors are finding good carry not just in the likes of the rupee and rupiah, whose yields are above those in the United States, but even those with low interest rates such as the South Korean won . The won has led gains in Asian currencies this year with a 6.7% rally against the dollar. The yield advantage over dollars, or the 'carry', measured by the three-month tenure is 2% on the Indian rupee and 1.2% for Indonesia's rupiah. Brazil's real gives a much higher carry at 9% but is far more volatile, meaning the trade could go horribly wrong if the currency depreciates, instead of appreciating. The future expected 3-month volatility, also called implied volatility, for the real is 8.1% compared with 4.7% for the rupee. Goldman Sachs said carry trades were 'a big theme' in recent meetings with its New York clients, with interest growing in Latin American and European markets. 'If volatility settles some more, we will start to hear more about dollar-funded carry trades,' ING Bank said. 'This could be a story for this summer.' Huge inflows Since 'FX carry trades' typically involve investments in bond or money markets in these destinations, analysts expect to see heavy flows into emerging markets. Data for April shows investors bought bonds worth $8.92 billion, the highest for any month since last August, in South Korea, India, Indonesia, Thailand and Malaysia. While some of those flows could have been straight real-money investments into these markets, analysts say carry trades also boomed. In South Korea, foreign investors bought $7.91 billion in bonds, the most since May 2023. Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments, finds carry trades in Turkey attractive since the central bank's adoption of more orthodox monetary policy. Turkey's benchmark rates are at 46%.
Reuters
2 days ago
- Business
- Reuters
Weak dollar reprises its role as 'carry' trade funder
MUMBAI, June 2 (Reuters) - The U.S. dollar's weakness since the start of Donald Trump's presidency has made it the preferred funding currency for popular "carry" trades, fuelling heavy flows into higher-yielding emerging market currencies. Dollar-funded carry trades in the Indonesian rupiah , Indian rupee , Brazilian real , Turkish lira among other currencies, are back in vogue, fund managers said. In a typical currency carry trade, investors use cheap-to-borrow currencies to fund investments in those with better yields. Returns are boosted if the borrowed currency weakens. The dollar, traditionally less favoured than the Japanese yen or Swiss franc for such trades, has become the funding currency of choice as Trump's trade war stokes recession worries and an investor retreat from U.S. Treasuries. Carl Vermassen, a portfolio manager at Zurich-based asset manager Vontobel, has added to carry trades on the rupee and rupiah. "Emerging market local currency was basically shunned for the simple reason: to avoid local currency risk at a time of an almighty dollar," he said. "But, given most investors deem U.S. exceptionalism to have ended, things are changing." Claudia Calich, head of emerging market debt at M&G Investments, also expects dollar weakness to persist and support carry trades. The London-headquartered fund oversees more than 312 billion pounds ($423.5 billion) and favours the rupee and Philippine peso for carry positions within Asia and the Brazilian real and Mexican peso in Latin America. The more investors rush back into dollar carry trades, the deeper the dollar's losses are likely to be, analysts said. The dollar index has fallen 8.5% so far this year, dropping below the critical 100 mark in mid-April for the first time in nearly two years. It was last seen at 99.30. That means investors are finding good carry not just in the likes of the rupee and rupiah, whose yields are above those in the United States, but even those with low interest rates such as the South Korean won . The won has led gains in Asian currencies this year with a 6.7% rally against the dollar. The yield advantage over dollars, or the "carry", measured by the three-month tenure is 2% on the Indian rupee and 1.2% for Indonesia's rupiah. Brazil's real gives a much higher carry at 9% but is far more volatile, meaning the trade could go horribly wrong if the currency depreciates, instead of appreciating. The future expected 3-month volatility, also called implied volatility, for the real is 8.1% compared with 4.7% for the rupee. Goldman Sachs said carry trades were "a big theme" in recent meetings with its New York clients, with interest growing in Latin American and European markets. "If volatility settles some more, we will start to hear more about dollar-funded carry trades," ING Bank said. "This could be a story for this summer." Since "FX carry trades" typically involve investments in bond or money markets in these destinations, analysts expect to see heavy flows into emerging markets. Data for April shows investors bought bonds worth $8.92 billion, the highest for any month since last August, in South Korea, India, Indonesia, Thailand and Malaysia. While some of those flows could have been straight real-money investments into these markets, analysts say carry trades also boomed. In South Korea, foreign investors bought $7.91 billion in bonds, the most since May 2023. Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments, finds carry trades in Turkey attractive since the central bank's adoption of more orthodox monetary policy. Turkey's benchmark rates are at 46%(TRINT=ECI), opens new tab.
Yahoo
2 days ago
- Business
- Yahoo
Weak dollar reprises its role as 'carry' trade funder
By Nimesh Vora MUMBAI (Reuters) - The U.S. dollar's weakness since the start of Donald Trump's presidency has made it the preferred funding currency for popular "carry" trades, fuelling heavy flows into higher-yielding emerging market currencies. Dollar-funded carry trades in the Indonesian rupiah, Indian rupee, Brazilian real, Turkish lira among other currencies, are back in vogue, fund managers said. In a typical currency carry trade, investors use cheap-to-borrow currencies to fund investments in those with better yields. Returns are boosted if the borrowed currency weakens. The dollar, traditionally less favoured than the Japanese yen or Swiss franc for such trades, has become the funding currency of choice as Trump's trade war stokes recession worries and an investor retreat from U.S. Treasuries. Carl Vermassen, a portfolio manager at Zurich-based asset manager Vontobel, has added to carry trades on the rupee and rupiah. "Emerging market local currency was basically shunned for the simple reason: to avoid local currency risk at a time of an almighty dollar," he said. "But, given most investors deem U.S. exceptionalism to have ended, things are changing." Claudia Calich, head of emerging market debt at M&G Investments, also expects dollar weakness to persist and support carry trades. The London-headquartered fund oversees more than 312 billion pounds ($423.5 billion) and favours the rupee and Philippine peso for carry positions within Asia and the Brazilian real and Mexican peso in Latin America. The more investors rush back into dollar carry trades, the deeper the dollar's losses are likely to be, analysts said. The dollar index has fallen 8.5% so far this year, dropping below the critical 100 mark in mid-April for the first time in nearly two years. It was last seen at 99.30. That means investors are finding good carry not just in the likes of the rupee and rupiah, whose yields are above those in the United States, but even those with low interest rates such as the South Korean won. The won has led gains in Asian currencies this year with a 6.7% rally against the dollar. The yield advantage over dollars, or the "carry", measured by the three-month tenure is 2% on the Indian rupee and 1.2% for Indonesia's rupiah. Brazil's real gives a much higher carry at 9% but is far more volatile, meaning the trade could go horribly wrong if the currency depreciates, instead of appreciating. The future expected 3-month volatility, also called implied volatility, for the real is 8.1% compared with 4.7% for the rupee. Goldman Sachs said carry trades were "a big theme" in recent meetings with its New York clients, with interest growing in Latin American and European markets. "If volatility settles some more, we will start to hear more about dollar-funded carry trades," ING Bank said. "This could be a story for this summer." HUGE INFLOWS Since "FX carry trades" typically involve investments in bond or money markets in these destinations, analysts expect to see heavy flows into emerging markets. Data for April shows investors bought bonds worth $8.92 billion, the highest for any month since last August, in South Korea, India, Indonesia, Thailand and Malaysia. While some of those flows could have been straight real-money investments into these markets, analysts say carry trades also boomed. In South Korea, foreign investors bought $7.91 billion in bonds, the most since May 2023. Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments, finds carry trades in Turkey attractive since the central bank's adoption of more orthodox monetary policy. Turkey's benchmark rates are at 46%.
Yahoo
6 days ago
- Business
- Yahoo
Deutsche Boerse rally shows a European re-rating is underway
By Danilo Masoni MILAN (Reuters) -A rally in Deutsche Boerse shares illustrates how Europe is bridging a value gap with its Wall Street peers, as fiscal stimulus and a shift in global capital flows help drive a broad re-rating from depressed levels. Following a near 30% rally so far this year, the German exchange operator hit a record valuation of 25 times expected earnings, briefly surpassing all four of its major U.S. competitors by a thin margin for only the second time on record. This is a significant milestone in a region that over the past decade has displayed a substantial discount to the United States due to slower earnings growth and shallower capital markets. A year ago, the Frankfurt group traded at a 12-19% discount to U.S. exchanges ICE, Nasdaq, CME and CBOE. Now they all trade in a band of 23-25 times forward earnings. Euronext is catching up fast too, at 20 times, while LSEG trades at 27 times forward earnings. After hitting a record 41% discount to Wall Street in November, Europe's valuation gap has shrunk by around 10 percentage points, LSEG data based on a forward price-to-earnings metric shows, a still sizeable difference. "It doesn't take a lot to start thinking maybe it's time for a re-rating," said Markus Hansen, a portfolio manager at Swiss investment manager Vontobel. "The valuations elastic band was so stretched that there is still more to give on this." U.S. tariff risks have not deterred investors from raising allocations to Europe this year, marking a reversal from years of outflows driven by American "exceptionalism". Europe's broad STOXX 600 index has gained 8.5% so far this year, the S&P 500 is up less than 1%. Anthilia fund manager Giuseppe Sersale said the re-rating also reflects renewed earnings momentum after a long stagnation and he expects the European discount to narrow further. European earnings growth is expected to accelerate to above 11% next year, but the American benchmark is still forecast to show superior growth until 2027, per LSEG data, suggesting profit forecasts alone do not explain this year's rare STOXX outperformance. A willingness by investors to pay more for European equities is helped by improving visibility over economic policy versus a less predictable Washington, German fiscal stimulus and a Europe-wide military spending boom that has boosted the perception of closer integration. High-flying defence stocks like Rheinmetall have overshot Wall Street counterparts. However, banks - heavy contributors to Madrid and Milan's indexes - have only partly re-rated to U.S. peers, with Vontobel's Hansen saying there is further to go. LIKE THE 90S Some investors are drawing parallels with the period between 1992 and 1999 when a cohesive European policy backdrop supported stock valuations and Europe traded at an average discount of just 2.7% to Wall Street, widening to only around 8.5% in the first half of the 2000s. Analysts said further gains in the present day could be driven by the creation of a European savings and investment (SIU) union aimed at mobilising $37 trillion in household savings and deepening European capital markets. Under a "Blue Sky" scenario of major reforms around the saving union materialising, Morgan Stanley strategist Marina Zavolock sees European stocks potentially re-rating above 20 times forward earnings in the long-term. The MSCI USA index trades at 21.5 times expected earnings and the MSCI Europe at 14.7 times, up from a 2022 low of 10.6 times, LSEG data shows. Europe's exchange stocks should also benefit as greater volatility lifts trading volumes, analysts said. Tom Mills at Jefferies said Deutsche Boerse, which operates Germany's DAX index, should gain from the SIU. His top pick though is Euronext, which runs Paris and Milan, where luxury stocks LVMH and Ferrari are listed, along with many other bourses in Europe. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
6 days ago
- Business
- Reuters
Deutsche Boerse rally shows a European re-rating is underway
MILAN, May 29 (Reuters) - A rally in Deutsche Boerse ( opens new tab shares illustrates how Europe is bridging a value gap with its Wall Street peers, as fiscal stimulus and a shift in global capital flows help drive a broad re-rating from depressed levels. Following a near 30% rally so far this year, the German exchange operator hit a record valuation of 25 times expected earnings, briefly surpassing all four of its major U.S. competitors by a thin margin for only the second time on record. This is a significant milestone in a region that over the past decade has displayed a substantial discount to the United States due to slower earnings growth and shallower capital markets. A year ago, the Frankfurt group traded at a 12-19% discount to U.S. exchanges ICE (ICE.N), opens new tab, Nasdaq (NDAQ.O), opens new tab, CME (CME.O), opens new tab and CBOE (CBOE.Z), opens new tab. Now they all trade in a band of 23-25 times forward earnings. Euronext ( opens new tab is catching up fast too, at 20 times, while LSEG (LSEG.L), opens new tab trades at 27 times forward earnings. After hitting a record 41% discount to Wall Street in November, Europe's valuation gap has shrunk by around 10 percentage points, LSEG data based on a forward price-to-earnings metric shows, a still sizeable difference. "It doesn't take a lot to start thinking maybe it's time for a re-rating," said Markus Hansen, a portfolio manager at Swiss investment manager Vontobel. "The valuations elastic band was so stretched that there is still more to give on this." U.S. tariff risks have not deterred investors from raising allocations to Europe this year, marking a reversal from years of outflows driven by American "exceptionalism". Europe's broad STOXX 600 index has gained 8.5% so far this year, the S&P 500 (.SPX), opens new tab is up less than 1%. Anthilia fund manager Giuseppe Sersale said the re-rating also reflects renewed earnings momentum after a long stagnation and he expects the European discount to narrow further. European earnings growth is expected to accelerate to above 11% next year, but the American benchmark is still forecast to show superior growth until 2027, per LSEG data, suggesting profit forecasts alone do not explain this year's rare STOXX outperformance. A willingness by investors to pay more for European equities is helped by improving visibility over economic policy versus a less predictable Washington, German fiscal stimulus and a Europe-wide military spending boom that has boosted the perception of closer integration. High-flying defence stocks like Rheinmetall ( opens new tab have overshot Wall Street counterparts. However, banks (.SX7P), opens new tab - heavy contributors to Madrid (.IBEX), opens new tab and Milan's indexes (.FTMIB), opens new tab - have only partly re-rated to U.S. peers, with Vontobel's Hansen saying there is further to go. Some investors are drawing parallels with the period between 1992 and 1999 when a cohesive European policy backdrop supported stock valuations and Europe traded at an average discount of just 2.7% to Wall Street, widening to only around 8.5% in the first half of the 2000s. Analysts said further gains in the present day could be driven by the creation of a European savings and investment (SIU) union aimed at mobilising $37 trillion in household savings and deepening European capital markets. Under a "Blue Sky" scenario of major reforms around the saving union materialising, Morgan Stanley strategist Marina Zavolock sees European stocks potentially re-rating above 20 times forward earnings in the long-term. The MSCI USA index (.dMIUS00000PUS), opens new tab trades at 21.5 times expected earnings and the MSCI Europe (.dMIEU00000NEU), opens new tab at 14.7 times, up from a 2022 low of 10.6 times, LSEG data shows. Europe's exchange stocks should also benefit as greater volatility (.V2TX), opens new tab, (.VIX), opens new tab lifts trading volumes, analysts said. Tom Mills at Jefferies said Deutsche Boerse, which operates Germany's DAX index (.GDAXI), opens new tab, should gain from the SIU. His top pick though is Euronext ( opens new tab, which runs Paris and Milan, where luxury stocks LVMH ( opens new tab and Ferrari ( opens new tab are listed, along with many other bourses in Europe.
