Funds market sees currency diversity

KARACHI: Some of 2017s top-performing emerging market fund managers are reshuffling their currency holdings, paring back bets on some of the asset class’ big names and shifting to more exotic currencies like the Czech koruna, Uruguayan peso and the Egyptian pound.

The dollar’s bounceback in September, including its best week of the year to close the month, has not changed managers’ underlying bearishness on the currency.

The shift represents a sense that the greenbacks remarkable slide against rivals like the Mexican peso and Brazilian real may stall – the dollar bounced to a three-month high versus the peso on Thursday – while other currencies are due for a rally.

Fund managers embrace of these lesser known and less liquid currencies is a sign that even within emerging markets, long considered an exotic and volatile area to begin with, investors are pushing out their risk profile. That could represent either a savvy wager or irrational exuberance.

Data from research firm eVestment shows that local currency bond and outright currency exposure to Uruguay more than doubled from the second quarter of 2016 to the second quarter of 2017, long positions in the Czech Republic’s local currency bonds have surged to 44.9 per cent from 11.4pc during that period and the proportion of investors with currency exposure to the Czech koruna has soared to 68.0pc from 12.7pc.

Investors with currency exposure to Egypt have grown from 2.53pc in the second quarter of 2016 to 45.3pc in the same quarter this year.