EM currency hedges for long-term equity positions - strategies?

asked by u/sota65 · 3d · 2 answers

Been diving deeper into EM equities, specifically countries with higher inflation and more volatile currency regimes. When holding for longer terms, say 1-3 years, how are you all handling the currency risk? I've mostly stuck to developed markets where this isn't as pronounced. Do you hedge a portion with forward contracts, or use options, or simply accept the $EMFX volatility as part of the game? My concern is seeing good local returns eroded by a depreciating currency. Any thoughts on practical, cost-effective strategies for smaller positions would be appreciated.

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  • u/ananya_bose· 1 pts· 3d

    Ah, the classic 'how much sleep will I lose over this' question for EM. I've found that for 1-3 years, a full hedge can eat into too much of the potential upside, making you wonder why you bothered with the EM in the first place. Are you primarily looking at growth or yield in these positions?

  • u/suthidawattana· 1 pts· 3d

    That's a great question, and it really highlights the added complexity of EM. For 1-3 year horizons, I've found that outright forward contracts can get expensive due to wide basis, and options even more so. Many institutional investors often just take the currency risk as part of the total return equation, or use broad EM currency ETFs as a partial, indirect hedge.

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