Even with a spate of interest rate cuts throughout the
developing world in 2012, investors embraced bonds denominated in
emerging markets currencies. Despite slack performances by major
emerging markets currencies such as the Brazilian real and the
South African rand, 2012 was a sturdy year for developing world
currencies, a trend that could continue this year in the eyes of
one portfolio manager.
With the stage set for 2013 to be another year full of
monetary easing by developed world central banks, emerging
markets currencies have tailwinds behind them, according to
WisdomTree Portfolio Manager Rick Harper.
"We believe 2013 will be another year of developed market
central bank activism that could provide positive tailwinds for
EM currency investors,"
said Harper in a research note
. "After a quick turnaround in risk sentiment in the first few
weeks of 2013, investors have done well by having exposure to
most emerging market currencies to start the calendar year."
highlighted by Harper
as an avenue for investors to participate in fast-growing Asian
economies, the WisdomTree Asia Local Debt ETF (NYSE:
) is up about half a percent to start 2013.
ALD is a combination of developed and emerging markets as
Australian and New Zealand issues are mixed with bonds
denominated in the local currencies of South Korea, Malaysia,
Indonesia, Philippines, Thailand, India, China, Hong Kong,
Singapore, Taiwan. Faster GDP growth could bolster Asian
currencies this year, according to Harper.
"Historically, Asian currencies have been less volatile than
their Latin American or European counterparts," he said in the
note. "In uncertain market environments, this has been a benefit
for investors. Many economists predict that Asian economies
ex-Japan will grow at faster rates in 2013 than Latin America or
Europe. Faster growth rates and increased economic output could
provide a boost for their currencies in 2013."
Coming off two consecutive years of significant losses against
the U.S. dollar, the Brazilian real could bounce back against the
greenback if Latin America's largest economy posts
better-than-expected growth figures. However, an improving U.S.
economy and rallying equity markets here could continue to add to
bull case for Mexican bonds
"In Latin America, another currency poised to continue its
upward trend in 2013 could be the Mexican peso," said Harper. "In
an environment where the U.S. economy continues to grow at faster
rates than developed economies in Europe, Mexico could continue
to be a net beneficiary."
with significant exposure to Mexican debt include the Market
Vectors LatAm Aggregate Bond ETF (NYSE:
) and the SPDR Barclays Emerging Markets Local Bond ETF (NYSE:
EDND). Investors looking for a direct play on the peso itself via
an ETF should consider the WisdomTree Emerging Currency Fund
CEW is nearly an equal weight product as it offers exposure to
15 emerging market currencies with weights ranging from 6.45
percent for the South African rand to 6.86 percent for the
Russian ruble. Mexico's peso accounts for 6.75 percent of CEW's
CEW has only posted a modest 0.09 percent year-to-date gain,
but if developing world central banks eschew Bank of Japan,
Federal Reserve-style easing this year, the fund could offer
upside to investors.
"With EM central banks largely on hold, the absence of
stimulus from them could remove a potential cause of currency
weakness that dampened returns in 2012," noted Harper. "For
investors that are still underexposed to international currency
and fixed income, 2013 could prove to be a great year for gaining
exposure to faster-growing economies around the world."
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