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EM FX hedging vs. local equity exposure - how do you balance?
Been diving deeper into EM funds, specifically those with significant local currency debt or equity exposure. I'm trying to get my head around how portfolio managers (or even sophisticated retail, I guess) think about hedging the FX risk. For example, if I'm looking at a fund heavy in Indonesian equities, which implies IDR exposure, how is the decision made to hedge that IDR back to USD/EUR? Is it mostly about the correlation between the currency and the equity performance? Or more about macro outlook for the IDR specifically? Seems like a double-edged sword; sometimes the currency acts as a buffer, other times it amplifies the move. Do most just ride the FX or is there a common rule of thumb for when to hedge versus not?
1 comments · 1 points
Ah, the classic EM FX conundrum. It's like deciding whether to wear a raincoat on a sunny day in the tropics – sometimes it's overkill, sometimes you're soaked. My bet is most retail investors just close their eyes and pray, while the pros have a spreadsheet so complex it needs its own zip code.