Higher interest rates in emerging economies have also served another purpose: Punishing those that dare short those currencies with higher costs of carry.
“Foreigners cut net short wagers on the Brazilian real to $21.6 billion on April 2 from a record $28.1 billion on Jan. 23, according to data from Sao Paulo-based BM&FBovespa, South America’s largest exchange. Overseas investors in the Chilean peso forwards market reduced their net short positions to $13.3 billion on April 1 from an all-time high of $15.8 billion on March 6, central bank data show,” according to Bloomberg.
Conservative investors looking for emerging markets currency exposure can consider the actively managed PIMCO Foreign Currency Strategy ETF (NYSEArca: FORX). Up almost 5% in the past 60 days, FORX allocates nearly 40% of its weight to the real, Mexican peso, Russian ruble and rupee.
FORX tempers its emerging markets exposure with allocations to the British pound, U.S. and New Zealand dollars and Nordic currencies, among other developed market offerings.
PIMCO Foreign Currency Strategy ETF