Three-quarters of global carry trades have been reversed, wiping out most of their gains for the year, according to financial experts at JPMorgan, Bloomberg reports. 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.

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 the 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.

This 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.

MARKETS THIS MORNING-

Asian markets are rebounding early this morning after Wall Street notched its best day in two years, with the Nikkei up 1.6%, the Topix and South Korea’s Kospi each up 1.4%. Meanwhile, Wall Street futures opened lower, with S&P 500 futures briefly down 0.3% ahead of dispatch time.

ADX

9,255

+0.1% (YTD: -3.4%)

DFM

4,196

0% (YTD: +3.4%)

Nasdaq Dubai UAE20

3688

+0.6% (YTD: -4%)

USD : AED CBUAE

Buy 3.67

Sell 3.67

EIBOR

5% o/n

4.6% 1 yr

TASI

11,667

-0.5% (YTD: -2.5%)

EGX30

28,750.8

+0.4% (YTD: +15.5%)

S&P 500

5,319

+2.3% (YTD: +11.5%)

FTSE 100

8,145

-0.3% (YTD: +5.3%)

Euro Stoxx 50

4,669

+0.7% (YTD: +3.3%)

Brent crude

USD 79.01

+0.87%

Natural gas (Nymex)

USD 2.13

+0.71%

Gold

USD 2,463.3

+1.27%

BTC

USD 61,383.9

-0.5% (YTD: +39%)

THE CLOSING BELL-

The ADX rose 0.1% yesterday on turnover of AED 1.27 bn. The index is down 3.4% YTD.

In the green: Bank of Sharjah (+9.4%), Fujairah Building Industries (+8.9%) and Q Holding (+4%).

In the red: Burjeel Holdings (-6%), Al Yah Satellite Communications Company (-4%) and Phoenix Group (-3.6%).

Over on the DFM, rose 0.04% on turnover of 474.8 mn. Meanwhile Nasdaq Dubai rose 0.6%

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