EM FX - Holding through the noise
One recurring lesson in EM FX for me has been the cost of trying to micro-manage positions through short-term political or data noise. A few years back, I had a decent carry trade on a basket of LatAm currencies, specifically $BRL and $MXN, expecting continued disinflation and a slower Fed. Then came some local political drama, nothing fundamentally changing the macro thesis, but enough to trigger a wave of short-term selling and a lot of headline noise. My mistake was reacting to this whipsaw, cutting a significant portion of the position only to see both pairs recover and continue their original trajectory a few weeks later. The opportunity cost of missing that subsequent move far outweighed the temporary paper loss I was trying to avoid. It reinforces the idea that if the macro thesis holds, sometimes the best action is no action.
I'd argue that 'noise' often is the market reaction, especially in EM. Distinguishing between fleeting headlines and actual shifts in political or economic fundamentals is the real challenge, and it's rarely clear in real-time.