- 1 Apr 2010 3:00 AM
"This is not fully aligned with our underlying currency outlook. While we are bullish BRL and like selling EURPLN on any significant rallies into the 3.95- 4.00 range, we remain neutral EURHUF near-term," CS strategist Olivier Desbarres noted.
Furthermore, he sees scope for USDIDR and USDINR downside near-term despite signs of Asian central bank resistance to rapid currency appreciation from current levels.
The TWD and BRL scores are the largest gainers this month, while the ZAR score sees the biggest fall.
"The February 2010 Scorecard advocated being long HUF, MXN, and THB against being short MYR, SGD, TWD, and RUB in March 2010. This generated an estimated return vs. USD of +0.2%," Desbarres added.
Based on 11 market and macroeconomic indicators CS publishes its Scorecard on a monthly basis, examining 17 EM currencies. The higher the points given, the bigger the upside potential of the currency is, i.e. positive score implies underlying variables are currency positive, while negative scores are currency negative.
"The Scorecard underperformed a strategy of going long the three currencies with the highest carry and short the three currencies with the lowest carry (the "carry basket") and a strategy of buying and holding all 17 EM currencies vs. USD (the "index"). Both strategies notionally returned +1.3%," CS said.
Notionally, the Scorecard has returned a cumulative +62.3% since inception in January 2008, compared with an index return of +2.9% and a carry basket return of +16.3%.
The latest run of the Scorecard suggests being long HUF, BRL and PLN against being short IDR, INR, ZAR and RUB vs. USD in April 2010.
The HUF score remains in the top three and is joined this month by the BRL and PLN scores.
Over the past fiver months, Hungary’s forint has finished in the top3 every time, but in the Scorecard comprised between 27 February and 27 March it has finished on top for the third month in a row. It has also scored higher than last month (4.5 pts vs. 3.5 pts).
The BRL score records the second largest rise this month after TWD due mainly to the pick-up in Brazilian GDP growth. "The jump in the TWD score is due to a rise in the expected change in Taiwan’s real policy rates between now and end-2010 and a somewhat less interventionist central bank (CBC) in March."
Desbarres stressed that these scores "are not fully aligned" with the underlying currency outlook of Credit Suisse.
"While we are bullish BRL and like selling EURPLN on any significant rallies into the 3.95-4.00 range, we remain neutral EURHUF near-term. Furthermore, we expect the TWD to continue underperforming, particularly if global risk appetite is buoyant. We think CBC is likely to remain focused on low USDTWD volatility and thus limit USDTWD downside until it has greater confidence in the domestic and regional economic turnaround," he added.
February 2010 Scorecard notionally posted +0.2% return
Being long HUF, MXN, and THB against being short MYR, SGD, TWD, and RUB in March 2010, as advocated by the end-February 2010 Scorecard, would have generated an estimated total return versus the dollar of about +0.2% in the one-month review period. (The total return is defined as the change in the spot rate plus the carry versus the US dollar.)
"The Scorecard underperformed a strategy of simply buying all 17 of the EM currencies in our sample against the dollar (which we refer to as the "index" return). The index return was +1.3%. The Scorecard also underperformed a strategy of being long the three currencies with the highest carry and being short the three currencies with the lowest carry (which we refer to as the "carry-basket" return). The carry-basket return was +1.3%."
Scorecard notional performance since inception: +62.3%
"Notionally, a portfolio process that bought the three currencies with the highest scores and sold the three currencies with the lowest scores1 has generated positive total returns in US dollar terms of +62.3% since inception in January 2008. This compares with an index return of + 2.9% and a carry-basket return of +16.3%" (see chart below).
Since inception, the Scorecard has recorded positive notional returns in 21 out of 26 months.
Over that period, the Scorecard has outperformed both the index return and the carry-basket return by an estimated average of 1.7 and 1.2 percentage points, respectively, per month. This continues to highlight the value of the systematic approach to portfolio definition that the Scorecard attempts to facilitate."