Traders who braved the rout in emerging markets in search of higher returns are suddenly reaping the rewards
A Bloomberg currency index that measures carry-trade returns from eight emerging markets funded by short positions in the dollar has gained 3.2 percent in November so far. If it stays that way, it will be the best month since January.
Carry trades were upended earlier this year as the dollar strengthened and concerns over a protracted trade war rattled markets. But now the slide in the price of oil and growing speculation that the Federal Reserve may slow the pace of interest-rate increases next year have rekindled investor interest in the most beaten-down assets
“Some of the superb carries are looking increasingly attractive on this subtle shift in Fed narrative alone,” said Stephen Innes, head of trading for Asia-Pacific at Oanda Corp. in Singapore. It “brings back some yield appeal to the beleaguered EM carry trade.”
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