Beware the Hidden Dollar Bet in Asian Equities
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Beware the Hidden Dollar Bet in Asian Equities
You think you’re running an equity book. You may also be running an FX trade.
BOTTOM LINE
Asian equities need a weak US Dollar. Right now, that exposure is at multi-year extremes, and most books aren’t sizing for it.
THE SETUP
March’s sharp drawdown in MSCI Asia Pacific coincided almost exactly with a resurgent USD. The relationship is not new. But the market is currently ignoring the latest dollar move - creating a potential gap between what investors think they own and what they actually own.
THE KOSPI CASE STUDY
Using KOSPI as a lens, Qi’s MFERM shows dollar exposure has increased sharply. Both DM FX (USD Trade Weighted) and EM FX (USDCNH) sit among the top factor exposures - and both have risen significantly in recent weeks.
Zoom out and the picture sharpens further. KOSPI’s sensitivity to a weak Dollar is at its highest point in the past year.
Continue reading our analysis by downloading the PDF above
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