China’s Yuan Standout Funder for Emerging-Market Carry Trade
- Goldman cites narrow range, low volatility of offshore yuan
- Index of EM carry trades using dollars lost 0.6% this year
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The historic end to super-easy monetary policy in Japan and a surprise rate hike in Taiwan have strengthened the yuan’s appeal as a funding currency for the global emerging-market carry trade.
Investors are reassessing their strategies after a pause in the stellar run of dollar-funded trades amid signs the Federal Reserve may not ease as aggressively as previously anticipated. Carry traders borrow in low-yielding countries to invest in higher-yielding assets, often in emerging markets. An ideal funding currency is characterized by low volatility and limited scope to strengthen.