Emerging Markets | Equities | Europe | FX | Rates | Trade Idea | US
MH Model Portfolio: Turning Bullish on EM FX
- By Bilal Hafeez
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Portfolio Changes
We made three new changes to our portfolio this week, adding one new trade while closing two.
We shifted our stance on EM FX and added a new long basket on BRL, IDR, INR and KRW funded by USD. EM currencies have fallen on the back-up in US yields, though the weakness was less pronounced than we had anticipated. Despite the back-up in US yields, overall risk sentiment has remained stable. This could be because yields are rising for ‘good’ reasons. Finally, seasonality should also add a tailwind to the trade over the next month or so.
We target a 5% total return, with a stop loss at -2%.
The basket replaces our existing trades of short PHP vs IDR, which we close at a flat return, and short USD vs TWD, which we close at a 1.6% loss.
Meanwhile, we adjusted the stop losses for a few of our trades. Short 10y and 30y USTs are performing well, so we have lifted the stop loss above entry. We did the same for paying Apr-24 ECB ESTR.
For EUR/CHF and GBP/USD, we changed the stop loss to entry.
- Short GBP/USD: update stop loss to 1.2750 (entry 1.2762).
- Short EUR/USD: maintain stop loss of 1.095 (entry 1.0830).
- Short US 10y and 30y: update stop losses to 4.21% and 4.35% (entries 3.99% and 4.23%).
- Pay Apr-24 ECB ESTR: update stop loss to 3.75% (entry 3.60%).
- Long EUR/CHF: update stop loss to 0.9394 (entry 0.9394).
Historic Performance
Our portfolio is flat now YTD after falling 0.6% since last week. The portfolio has returned +50.5% since inception (+11.0% annualised) with a 1.0 Sharpe ratio. This continues to place it above the average discretionary macro hedge fund, which lost 0.7% in January 2024 (Bloomberg: BHDMAC Index; Chart 1).
Current Trades
DM
Rates
- Pay 2Y EUR vs receive 2Y GBP Swaps (target 90 bps, stop 155 bps) – read here.
- Short 10y and 30y USTs – read here.
- Long 10y Spain vs BTP and Bund (target 12 bps; stop 36 bps) – read here.
- Pay Apr-24 ECB ESTR (target 3.90%; stop 3.75%) – read here.
FX
- Long EUR/GBP (target 0.877; stop 0.846) – read here.
- Short EUR/USD (target 1.055; stop 1.095) – read here.
- Long EUR/CHF (target 0.9700; stop 0.9394) – read here.
- Short GBP/USD (target 1.235; stop 1.275) – read here.
EM
FX
- Long EM FX Basket (target 95.0; stop 102.0) – read here.
- Long EUR/PLN (target 4.480; stop 4.295) – read here.
- Long 6M EUR/TRY digital put, strike 32.0 – read here.
- Long EUR/CZK (target 25:60; stop 24:00) – read here.
Rates
- 5y10y MXN TIIE Steepener (target 40 bps; stop -30 bps) – read here.
- Receive BRL DI F27 (target 9.50%; stop 10.80%) – read here.
To see a full list of our trades since inception to the end of 2023, please see here.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.