Offshore Capitalist

Eight of the 10 best-performing currencies are from emerging markets

NEW YORK TRADERS in currency options are showing that emerging economies have become safer relative to developed nations than at any time in almost two years.

Three-month implied volatility for the seven biggest developing country currencies fell to 10% in March compared with 11.4% for industrialised nations, according to JPMorgan Chase & Co indexes. The gap is the widest since July 2008. So far this year, eight of the 10 best-performing currencies are from emerging markets.

The record US budget deficit, Europe’s bailout of Greece and the prospect of a hung parliament in the UK are increasing the risk of losses in dollars, euros and pounds. In developing markets, the deficit fell to one-third the level of advanced nations this year and the economies are growing twice as fast as the US, the International Monetary Fund says.

“The global perception of risk is changing,” said Jerome Booth, who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.”

That’s a switch from three years ago, when record-low volatility was fuelled by investors underestimating the risks of leverage. Now, volatility is declining in developing markets as countries from China to Brazil lead the global recovery, while swelling budget deficits in the UK and US will weaken those nations’ currencies, Booth said.

via Eight of the 10 best-performing currencies are from emerging markets-Global Markets-Markets-The Economic Times.

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