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Asia Markets
Strong Dollar Burns U.S. Investors in Asia
From the Wall Street Journal of Tue, 09 Dec 2014 01:59:56 EST
A sheet of uncut $100 bills is inspected at the Bureau of Engraving and Printing's western currency facility in Fort Worth, Texas, on Sept. 24.
A sheet of uncut $100 bills is inspected at the Bureau of Engraving and Printing's western currency facility in Fort Worth, Texas, on Sept. 24. LM Otero/Associated Press

HONG KONG—Investors using dollars to snap up stocks in Asia and emerging markets elsewhere are finding their returns dented by the surging greenback.

Stock rallies in India, China and Southeast Asia have yanked up the performance of funds invested in risky markets. But a broad decline in emerging-market currencies has curtailed the benefits as U.S. funds convert gains back into dollars.

Mutual funds invested in a basket of Asia stocks and offered to U.S. investors are up only 3.2% on average since the beginning of the year, lagging the 11.2% increase for mostly euro-denominated funds invested in a similar basket but offered to European investors, according to data by Morningstar.

Currencies are always a risk for investors, but this year they’ve been especially a burden because of a sharp rally in the dollar, as the U.S. economy recovers while growth in Europe and Asia remains relatively sluggish.

The dollar has been hitting fresh highs against global currencies, making it more attractive for holders to keep assets denominated in dollars. In Asia, the dollar has rallied to a seven-year high against the Japanese yen, prompting investors to sell Korean won, Singapore dollars and other Asian currencies on bets that central banks will try to guide their currencies weaker to help their exporters stay competitive.

Sean Chang, head of Asian debt investment at Barings Asset Management says his team hedged against a broader basket of Asian currencies in June and July than last year in anticipation of rally in the dollar, which picked up in July.

Some stock funds also hedge. The most obvious strategy this year was betting on a further decline in the Japanese yen. Still, hedging products aren’t available for some currencies and even fund managers bump into difficulties.

“Maybe on the day you want to hedge, there are too many people who want to,” said Khiem Do, a multi-assets fund manager at Barings Asset Management with $54.2 billion under management world-wide. “This has happened before during the taper tantrum,” he said, referring to the months last year when investors rushed to sell out of emerging markets after the U.S. first announced it would wind down years of easy money.

For ordinary investors, hedging is expensive and risky. Exchange-traded funds hedging for currency volatility are available—Morningstar says the WisdomTree Japan Hedged Equity Fund, the largest currency hedged ETF, was among U.S. ETFs seeing the biggest inflows last month—but there are very few currency-hedged ETFs tracking emerging markets.

“Hedging is mostly for the big guys,” adds Arthur Kwong, head of Asian-Pacific equities at BNP Paribas Investment Partners. “You need to have high volume to justify the trade.”

Mr. Kwong says BNP reduced its exposure to Singaporean stocks in recent years because it predicted a fall in the Singaporean dollar.

For investing in emerging markets and Asia, data show that European investors fared better than their U.S. counterparts for the first time this year since 2011. That year the euro fell 3.2% against the U.S. dollar, compared with a more than 10% decline so far this year that has put the euro at a two-year low.

Stuart Winchester, managing director and senior portfolio manager at Allianz Global Investors, says equity investors in Asia may have to pay more attention than usual to currency volatility, as easing measures by the Bank of Japan and the People’s Bank of China are increasing expectations that other central banks will follow to maintain their export competitiveness.

“There’s no question there will be a risk of beggar-thy-neighbor policies, where you have competitive currency devaluations going on,” he said. “My principle concern is how much and how quickly that depreciation will occur.”

—Gregor Stuart Hunter contributed to this article.

Write to Chao Deng at

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