Stock markets have recovered, but popular carry trade currencies have not yet done so
Despite the recent recovery in global equity markets, the popular carry trade currencies, particularly the Mexican peso (MXN) and the Brazilian real (BRL), have continued to lose value in recent weeks. The MXN, which experienced an extraordinary upward movement from the beginning of 2022 to mid-2024, has undergone a correction of 20% in the last eight weeks. This correction now seems exaggerated as both currencies continue to offer very high positive real yields: over 5% for the BRL and around 6% for the MXN. Compared to the real yields of the EUR and USD (1.5-2.5%), these currencies offer a significant buffer against risk.
The current calm on the stock markets could be temporary, pointing to a possible further depreciation of the MXN and BRL, which could peak in the fall.
Financial proposal:
We recommend hedging receivables in MXN and BRL to protect against further market risks. Given the current market situation and the possibility of a market overreaction, there may be an excellent opportunity to hedge USD receivables in MXN at the end of a further devaluation trend in order to benefit from the interest rate differential and potential appreciation opportunities. However, this strategy should be managed flexibly in order to be able to react to market changes as soon as the currencies start to recover.
