FX strategy: Local knowledge is a global advantage
A wobble in China, a rapid sell-off in global equities, a flight to the safe haven of government bonds and the unwinding of carry trades were all evidence of a change in investors’ risk appetite starting in February and going through into March. The moves showed many things, including the interdependence not only of various currencies but also different asset classes. For a brief period, the path of global equity markets seemed to be dictated by what was going on in an intraday basis in spot sterling/yen.
Ultimately, the increase in risk aversion might well prove only a small blip in the larger picture; for the moment, it seems that liquidity has not left the table. But what has clearly happened is that investors have called into question various countries’ growth rates, especially those considered as emerging markets. There are some who believe that claims of local knowledge are more than a mere advertising sound bite but rather the key to understanding more fully what is driving global financial markets.