top of page

📝 Expecting Outflows From Brazil And India: J.P. Morgan Strategy

Writer's picture: Rosbel DuránRosbel Durán

Outflows are expected from Brazil and India. Historically, outflows from these markets have coincided with currency weakness. The upcoming reweighting exercise implies outflows from Brazil and India, and Korea (Exhibit 1). Outflows are also expected from Taiwan, South Africa, and Korea but historically we have not seen these currencies sell-off into the effective rebalancing date. We are currently long USDINR 12m NDF as we expect BOP pressure, including equity outflows, to drive the rupee weaker.

Since 2012, trading on the back of the outflow signals would have returned 15.0%, while a long USD-EM “control” position would have yielded 7.8%, indicating that outflows do in fact drive FX price action. The impact of these flows is asymmetric, as inflows do not appear to drive appreciation, which may indicate intervention by monetary authorities for what is essentially a scheduled flow. Returns from a short-only strategy beat the control returns for every region and for most currencies. For the May rebalancing exercise, going short currencies expected to see outflows over the rebalancing period would have lost 3.3% (control return: +1.6%) although the average return of this strategy for the preceding four rebalancing exercises is +1.8% (control +0.3%). For more on this topic see our detailed study of the impact of MSCI rebalancing flows.

- J.P. Morgan EM Strategy





0 comments

Comments


© 2024

CableFXWHITEdropshadow.png
  • Twitter - White Circle

Investing and trading involve risk. This includes the possible loss of principal and fluctuations in value. There is no assurance that objectives will be met. Do not risk capital that you cannot afford to lose.  

bottom of page