The curious case of EM FX Carry
EM assets - and FX in particular - have long been considered analogous to the “carry trade”. Although carry is still an important component of total performance, the global financial crisis (GFC) and QE have been associated with a marked change in the importance and nature of carry contributions to total returns. Not only carry has become less important a contributor, but rather than amplifying the benefit of USD weakness it has actually attenuated this boost. As we have discussed in several recent pieces, the USD has been the dominant factor, and - as we discuss later in the report - country specifics have also grown in importance.