As EM ‘carry unwinds continue’, G10 stays put
Many of the Emerging Market corrections we have seen in recent weeks have been put in the context of a ‘carry unwind’ – the latest episodes in CNH and CNY being a case in point. Such corrections remind markets over the need to periodically question whether fundamentals can justify the returns (carry) and/or risks (volatility) being priced. For G10, risk: reward certainly isn’t at EM levels (pre-unwind) but there have been marginal improvements, but price action leaves much to be desired. Without underlying shifts in both portfolio flows and bank leverage, G10 carry is unlikely to find any joy.
Read the full report: UBS