Currency Volatility Set to Wipe Out Emerging-Market Carry Trades
- Yen-funded carry trades had worst returns since 2021 last year
- Volatility-adjusted high yielders are less attractive: Robeco
A sheet of Mexican 50 peso banknotes at the Bank of Mexico printing facility.
Photographer: Jeoffrey Guillemard/BloombergThis article is for subscribers only.
Emerging market investors are turning increasingly wary of carry trades as the threat of tariffs from the Donald Trump administration and the prospect of further dollar gains squeeze returns.
Latin American currencies, often bought as part of such trades, face pressure from domestic fiscal issues along with the prospect of trade tensions with the US, according to Mackay Shields and Pictet Asset Management. Carry trades involve borrowing in currencies from countries with relatively-low interest rates, like the yuan or yen, and investing those funds in markets with higher rates.