Funds Go All-In on FX Trades Driven by Central Bank Drama

-- The Federal Reserve is backpedaling on plans to cut interest rates, Japan is propping up the yen, British central bankers are divided, and Sweden and Switzerland are already loosening monetary policy.Global Chips Battle Intensifies With $81 Billion Subsidy Surge

“There’s a lot more action in G-10 than there has been for years,” said Lauren van Biljon, who helps to oversee $580 billion at Allspring. “Divergence is everywhere. There’s divergence in growth, inflation, trade expectations and that’s feeding through into surprises in the currency market.” GAM’s quant-driven fund has increased its exposure to G-10 currencies, he said, citing data from their models that point in favor of the asset class over emerging markets. At Allspring, Van Biljon increased bets last month against the euro and krona, while trimming the Indian rupee and Indonesian rupiah.

To be sure, some fund managers say they’re not pivoting out of emerging markets, but rather selecting a wider range of trades. CIBC Asset Management continues to bet on the Indian rupee, while also preparing for weakness in the Swiss franc, the Canadian dollar and the euro. For currency markets, elections could toss up another wild card, with the US, UK and European Union still set to hold leadership contests this year. To TD Securities Inc., there’s bound to be more volatility in store.

Fund managers at Allspring Global Investments and GAM Investments say they’re pivoting to so-called Group-of-10 currencies and away from emerging markets, where many policymakers are already cutting rates. Others like Ninety One’s Iain Cunningham are going with concentrated wagers. He’s raised his portfolio’s net-long US dollar position to 45% of his portfolio, from just 5% at the start of the year.

Of course, overall market volatility is still relatively muted, as seen by a JPMorgan Chase & Co. index of G-7 currency swings sinking to a two-year low in March. But some are seeing the early signs of an inflection and perhaps most surprisingly, the classic relationship between developed and emerging markets has been flipped upside down.

GAM’s quant-driven fund has increased its exposure to G-10 currencies, he said, citing data from their models that point in favor of the asset class over emerging markets. At Allspring, Van Biljon increased bets last month against the euro and krona, while trimming the Indian rupee and Indonesian rupiah.

Source: Loan Digest (loandigest.net)

Emerging Markets The Federal Reserve Allspring Global Investments Iain Cunningham Fund Managers Market Volatility European Central Bank Australian Dollar GAM Investments Swiss Franc Currencies Central Bankers Swedish Krona

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