Three-quarters of global carry trades have been reversed, wiping out most of their gains for the year. Recent market shifts have eroded its gains by about 10% since May — a change that suggests that investors are pulling away from this strategy, which had been profitable since the end of 2022, according to JPMorgan strategists wrote in a note cited by Bloomberg.

Enterprise, what is a carry trade? Carry trade is a strategy where investors borrow money at low interest rates in one currency and invest it in another country in local currency with higher interest rates. This can potentially yield high returns when market conditions are favorable.

So what’s the problem? The global carry trade strategy is currently “not offering an attractive risk-reward,” the investment bank said. When market conditions change unexpectedly, the potential rewards may not be enough to justify the risks, especially with global events such as the US elections potentially influencing markets further.

With the instability of global markets, differences in interest rates have also become less reliable. For example, changes in monetary policy on the central bank level — such as unexpected interest rate changes made by the Federal Reserve and the Bank of Japan — influence global borrowing and lending conditions. Case in point: The historically popular JPY-USD carry trade lost its appeal to investors this week when BoJ’s interest rate hike fueled an increase in the value of the JPY.

Is recovery on the cards? While there might be a small chance for recovery in the carry trade this month, the overall strategy is currently not as appealing as it has been until recently due to heightened risks, JP Morgan analysts concur.

Last week’s global unwinding can also be credited in a large part to investors and macro funds unwinding their positions in carry trades, with tech stocks likely suffering the brunt due to carry trade-funded positions in the asset class, analysts told Reuters.

TASI

11,667

-0.5% (YTD: -2.51%)

MSCI Tadawul 30

1,462

-0.31% (YTD: -5.7%)

NomuC

25,815

-0.34% (YTD: +5.24%)

USD : SAR (SAMA)

USD 3.75 Sell

USD 3.75 Buy

Interest rates

6.5% repo

5.5% reverse repo

EGX30

28,751

+0.4% (YTD: +15.5%)

ADX

9,306

+0.6% (YTD: -2.8%)

DFM

4,195

0.0% (YTD: +3.3%)

S&P 500

5,344

+0.5% (YTD: +12.0%)

FTSE 100

8,168

+0.3% (YTD: +5.6%)

Euro Stoxx 50

4,675

+0.1% (YTD: +3.4%)

Brent crude

USD 79.66

+0.6%

Natural gas (Nymex)

USD 2.14

+0.8%

Gold

USD 2,473.40

+0.4%

BTC

USD 61,062

+0.4% (YTD: +44.6%)

THE CLOSING BELL: TADAWUL-

The TASI dropped 0.5% Thursday on turnover of SAR 6.7 bn. The index is down 2.5 % YTD.

In the green: Baazeem (+10%), HB (+6.4%) and Theeb (+5.8%).

In the red: Saudi German Healht (-9.4%), Albaha (-7.7%) and Equipment House (-7.1%).

THE CLOSING BELL: NOMU-

The NomuC declined 0.34 % Thursday on turnover of SAR 27.9 mn. The index is down 5.7% YTD.

In the green: Al Rasheed (+7.3%), Meyar (+7.1%) and Naba Alsaha (+6.6%).

In the red: Fesh Fash (-9%), Azm (-24.4%) and Neft Alsharq (-5.9%)

CORPORATE ACTIONS-

#1- Mobi Industry will distribute SAR 7.5 mn in dividends at SAR 0.15 per share for 1Q 2024, it said in a disclosure to Tadawul. The distribution date is set for Thursday, 29 August.

#2- Southern Province Cement will distribute SAR 70 mn in dividends at SAR 0.5 per share for 1H 2024, the company said in a disclosure to Tadawul. Distribution is set for Sunday, 25 August.

#3- Al Wasatah Al Maliah (Wasatah Capital) will distribute SAR 5.3 mn in dividends at SAR 0.35 a piece for unitholders of Alwaha REIT Fund for 1H 2024, it said in a disclosure to Tadawul. Distribution is set for within 15 working days of the Thursday, 8 August announcement date.

#4- Al Mawarid Manpower will distribute SAR 18.8 mn in dividends at SAR 1.25 per share for 1H 2024, the company said in a disclosure to Tadawul. Distribution is set for Thursday, 22 August.

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