Photographer: Billy H.C. Kwok/Bloomberg

This May Be the Best Carry Trade in Currency Markets

  • Exports show signs of recovery while growth forecast is raised
  • Taiex Index hits 21-month high supported by fund inflows

Looking for the best carry trade in currency markets? The Taiwan dollar leads the pack.

With global currency volatility near a three-month low, conditions are supportive for carry trading in emerging currencies from the Brazilian real to the Thai baht and Russian ruble. The Taiwan dollar trade has outperformed this year, defying concerns that U.S. President Donald Trump may impose protectionist policies that hurt the island’s exports, which are critical to its economy. Overseas shipments have actually been growing. Taiwan also recently raised its 2017 economic growth forecast, and its financial markets are sizzling.

“There’s risk-on sentiment in the market and Taiwan is perceived to be a big beneficiary of the U.S. growth story, together with some others like South Korea,” said Tsutomu Soma, general manager of SBI Securities Co.’s fixed-income department in Tokyo. “Risks from protectionist policy remain, but such policy won’t materialize overnight and its impact won’t be seen any time soon.”

The Taiwan dollar’s sharpe ratio, which measures returns adjusted for price swings, is the highest among global emerging currencies at 7.9, followed by the Brazilian real at 6.0. The Taiwan dollar is up 4.8 percent versus the greenback this year, making it Asia’s strongest performer after South Korea’s won. And Taiwan’s 10-year government bond yield has dropped 6 basis points in the same period, bucking selloffs seen in Thailand, South Korea, China and India.

Taiwan’s equity market, which last week hit its highest level since May 2015, has attracted $2.5 billion in foreign portfolio investment in 2017, more than any other major economy in Asia, according to data compiled by Bloomberg. Optimism about Apple Inc.’s next iPhone have helped boost Taiwan shares, including for main assembler Hon Hai Precision Industry Co.

Read more: How Taiwan’s top fund manager is betting on next iPhone

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