FxWirePro: Quick glance at EMFX exposures and high-yielders

In this write-up, we run you through EMFX exposure cut close to neutral in JP Morgan’s August EM Client Survey. The aggregate EMFX positioning exposure is close to neutral and at the lowest level since September 2018 (refer above chart).

This is as investors added FX hedges to over-weighted rates positions. The positioning reduction in the August EM Client Survey was broad-based across the regions. The notable reductions were seen in EM Asia trade-related FX and all of Latam FX.

EMFX vol has severely under-reacted to bearish macro impulses this year. The cheapness is most apparent in long tenors (>=1Y) given the flatness of vol curves and de-coupling between USD rates and FX that boosts the volatility of back-end forwards.

USDINR and USDIDR screen as the flattest vol curves among high-yielding EM, followed by USDMXN and USDTRY. 1Y ATM vol and/or 6M6M forward volatility in INR particularly appeals given the risk to INR carry trades from the trade war and the sharp recent deterioration in India macro. Courtesy: JPM