John Maynard Keynes made and lost a small fortune investing in European currencies in the inter-war years.
- Currency markets tend to be are very cyclical. We believe the factors are shifting towards strength in emerging markets (EM) currencies
- Currency markets offer value following a 5-6 year trend: the US dollar has increased its trade-weighted valuation by 30% over the last six years, whereas EM currencies have devalued nominally by more than 40%
- The relative growth differential also favours EM market currencies, while conditions for US dollar appreciation are abating
Several emerging markets, most recently Argentina, have committed the “original sin” of borrowing in foreign currencies when they were weak and then defaulting when they strengthened. Recently, investors became enamoured with hedging strategies as both Europe and Japan proactively devalued and the US dollar soared.
Read more details here on the factors influencing emerging market currencies.
