The passive, fully funded currency indexes provided to EuromoneyFXNews show EM currencies all produced negative returns in the month, after two consecutive months of gains. The Bric Index was among the worst performers, losing 2.59% in March, closely followed by the Brics Index – Bric plus South Africa – which fell 2.50%.
The Commodity Currencies index, also reflecting increased investor concern about the possibility of a China economic slowdown, dropped by 2.21% in March, as did the Latin American index.
Moreover, it proved to be a difficult month for EM currency managers because the standard hedges that many would have employed did not compensate them for the sell-off in EM currencies.
For instance, there was no reciprocal rally in the euro. The EUR unfunded index lost 0.22% in March, while the AUD unfunded lost 3.25% during the month.
Last month, Chinese data – notably Markit PMI and monthly trade figures – have undershot expectations, and the Australian economy, with more than a quarter of all its exports going to China, is particularly vulnerable to any downturn in the world’s second-largest economy.
As a reflection of the moves across the currency markets in March, it appears these are more related to China and commodity prices, rather than the typical “risk on/risk off” drive price signals.
That is reflected in the performance of the CEEME index, which finished the month relatively unchanged, indicating that peripheral Europe might benefit in this environment.
| EM currency indexes struggle in March |
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