Emerging Market Currencies

Investment Summary
Emerging Market Currencies strategy is executed as follows: Each month an investor ranks 10 Emerging Markets countries into 3 lists according to GDP growth, Inflation and shor-term interest rates. The Investor buys and holds these currencies against US Dollar for the top 5 ranked countries by joint macroeconomic signal through 1-month Forward contracts. Each Currency has an equal dollar amount invested at beginning of the month.

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Investment Performance (Good Investment Selection Guide)
Investment Return (?): 9.9% Volatility (?): 7.5% Sharpe Ratio: 1.32 Maximum Drawdown: -12.5%

Investment’s Fundamental Concept:
Value investing in emerging markets is profitable with high returns. Growth of emerging markets arises from Demographics growth, abundant natural resources, low labor costs and improving standard of living.

However, market risk indicators must be implemented to monitor and close investments early in these countries since they exhibit higher risks than developed markets.

Emerging markets dangers include political risks, economic inequality, unpredictable events like nationalization of industries and external debt defaults.

Value Investing in emerging markets includes analysis of fundamental and macroeconomic data. The most important macroeconomic indicators are country’s GDP Growth, inflation, debt levels, interest rates and balance of payments.

Investment’s Logic:

The Investment Universe of the strategy consists of currency 1-month forwards versus the US Dollar for the following countries: Brazil, Hungary, Indonesia, Malaysia, Mexico, Poland, Russia, South Africa, Thailand, Turkey

Each month an investor ranks 10 Emerging Markets countries into 3 lists according to GDP growth, Inflation and shor-term interest rates. The Investor buys and holds these currencies against US Dollar for the top 5 ranked countries by joint macroeconomic signal through 1-month Forward contracts. Each Currency has an equal dollar amount invested at beginning of the month.

CDS Spreads for all countries are monitored to check country risk. If any of these countries CDS spreads has risen mor ethan 20% over past month, the investor doesn’t invest in this currency for the upcoming month. The capital is reallocated to the remaining currencies. If none of the currencies passes the CDS market risk filter, portfolio capital is invested in the US money markets for the follogin month.

Other Investment Strategy Characteristics:
Investment Type: Value Investing Investment Risk: 1/5 Very Low Backtest Range: 30-40 years Rebalancing period: Daily
Investment Strategy Markets:
  • 1-month Forward contracts