Markets, economies and political dynamics are always in flux. That’s a big reason why understanding what trends have staying power — knowing how the environment of today differs from that of the past — is crucial to intelligent, informed investing.
One undeniable source of divergence from the past is the recently heightened currency volatility. Currency volatility can wipe out gains from investments in other assets and create a sense of uncertainty over returns. Taking a different perspective on the dynamics behind currency volatility can help institutions appropriately hedge the risk in their portfolios and generate alpha.
In 2013 currency volatility began to rise as the tantrum — the market turbulence that followed the Federal Reserve’s mere intimation that it would wind down its bond buying — took effect. Rising U.S. interest rates forced a sharp move in global rates and led to a substantial pullback in capital from emerging markets.
Read the full article on Institutional Investor.