Emerging markets currencies began tumbling in May 2013 in the aftermath of the taper tantrum induced by the Federal Reserve, chasing investors from developing world equities and debt in addition to currencies.
With the WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) up almost 5% over the past two months, local currency bond and equity-based exchange traded funds are going along for the ride
The South African rand “and its peers such as the Turkish lira, Indian rupee, Indonesian rupiah and Brazilan real — at the forefront of last year’s selloff – have stabilised from the lows hit in recent months,” reports Sujata Rao for Reuters.
Although interest rates have been on the rise in the developing world those higher rates have helped shore up previously downtrodden currencies such as the real, rupiah and rupee.
Brazil recently hiked its benchmark rate to 11% and the WisdomTree Brazilian Real Strategy Fund (NYSEArca: BZF) is higher by almost 13% since the start of February. In late January, the Turkish central bank raised its overnight lending rate to 12% from 7.75% and more than doubled the overnight borrowing rate to 8% to 3.5%. [Central Bank Tries to Save Turkey ETF]
Rates in India and Indonesia are also considered high by the standards of developed markets. The WisdomTree Indian Rupee Strategy Fund (NYSEArca: ICN) and the Market Vectors-Rupee/USD ETN (NYSEArca: INR) are both up more than 6% since the start of February.
CEW is essentially an equal weight ETF as the 15 currencies held by the fund range in weights of 6.2% to 7.1%. The Fragile Five currencies – the Turkish lira, real, rupiah, rand and rupee – combine for about 35% of the ETF’s weight, according to WisdomTree data.