Back to the complete issue
Monday, 1 August 2022

Emerging-market investors are turning to the EUR to fund carry trades

Move over, USD. The EUR is the new funding currency of choice for EM carry traders: Investors trading emerging-market currencies with borrowed EUR have seen as much as 29% gains this year as the EUR’s fall against the greenback helps prop up some popular EM carry trades, Bloomberg reports. The EUR has fallen 10% against the USD so far this year on geopolitical tensions and fears of recession, briefly reaching parity last month for the first time in decades. The greenback, meanwhile, has been on a tear this year due to rising interest rates and increasing market instability, and according to some gauges has reached record highs. This, coupled with rising yields, has eaten into gains on USD carry trades and turned to losses on most EM currencies.

This has left the EUR looking attractive to EM traders: Though EM currencies have also been hard hit by the USD’s ascent, many are continuing to hold their own against the EUR. Eighteen of the 23 currencies tracked by Bloomberg have risen against EUR since the start of the year, making them potentially profitable carry trades.“Funding carry trades by selling EUR is becoming more common,” said one currency strategist at Wells Fargo. “The EU looks more likely to fall into recession and geopolitical developments should weigh on the currency, making EM carry trades funded by the EUR an interesting option.”

Investors expect this to last through the year’s end: “It doesn’t look good for the EUR, in the second half,” said Marek Drimal, strategist at Societe Generale. “Even if the ECB surprises with another large hike, there are still substantial risks for the EUR before we see a turnaround.”

Want more on the carry trade? Enterprise Explains has you covered.

Oil prices are super-charging the Saudi economy: The Saudi economy grew at its quickest pace in more than a decade in 2Q 2022, according to preliminary estimates (pdf) out yesterday. The economy grew at a 11.8% clip during the quarter on the back of heightened oil prices, which caused growth in the oil economy to surge 23.1% y-o-y. Non-oil GDP expanded at just 5.4%.

Libya could help to calm oil prices: Libya’s crude output has rebounded to 1.2 mn barrels per day, more than three months after protesters shuttered much of the country’s oil industry, according to Bloomberg.

ALSO FROM PLANET FINANCE-

  • No more growth for UK business this summer: The British private sector isn’t expecting to see any growth over the next three months, according to a Confederation of British Industry (CBI) survey, as business brace themselves for the Bank of England (BoE) to on Thursday announce what could be its largest rate hike since 1995. (Reuters)
  • More poor data out of China: Chinese manufacturing activity unexpectedly contracted in July as the country’s zero-covid policy continues to weigh on its economy. (Reuters)
  • Facebook is trying to recalibrate expectations: Meta chief exec Mark Zuckerberg reportedly acknowledged to employees his company’s pandemic-era forecasts on growth were too optimistic and failed to account for a potential downturn. The company posted its first-ever quarterly decline in revenues in 2Q 2022 and issued a gloomy forecast for the rest of the year. (Reuters)

Up

EGX30

9,467

+1.0% (YTD: -20.8%)

Up

USD (CBE)

Buy 18.90

Sell 19.01

Up

USD at CIB

Buy 18.93

Sell 18.99

None

Interest rates CBE

11.25% deposit

12.25% lending

Up

Tadawul

12,199

+0.4% (YTD: +8.1%)

Up

ADX

9,663

+1.0% (YTD: +13.8%)

Up

DFM

3,338

+1.1% (YTD: +4.4%)

Up

S&P 500

4,130

+1.4% (YTD: -13.3%)

Up

FTSE 100

7,423

+1.1% (YTD: +0.5%)

Up

Euro Stoxx 50

3,708

+1.5% (YTD: -13.7%)

Up

Brent crude

USD 103.97

+2.1%

Up

Natural gas (Nymex)

USD 8.23

+1.2%

Up

Gold

USD 1,781.80

+0.7%

Down

BTC

USD 23,593

-1.4% (YTD: -48.5%)

THE CLOSING BELL-

The EGX30 rose 1.0% at yesterday’s close on turnover of EGP 649.29 mn (20.3% below the 90-day average). Local investors were net buyers. The index is down 20.77% YTD.

In the green: Heliopolis Housing (+3.4%), EFG Hermes (+3.3%) and Ibnsina Pharma (+2.5%).

In the red: Rameda (-2.8%), GB Auto (-2.1%) and ADIB Egypt (-1.8%).

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.