FX hedging attractive ahead of US election

Reuters

FX hedging attractive ahead of US election - Goldman

2024 6월 13 일, 오전 10:03 GMT

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FX HEDGING ATTRACTIVE AHEAD OF US ELECTION - GOLDMAN

Investors in stocks or bonds should increase hedging to reduce their FX exposure, according to Goldman Sachs analysts, who see risks of long-subdued currency volatility making a comeback.

Analysts at the bank, in a note published Wednesday, point to risks around geopolitics, the U.S. election, or the U.S. economy.

The note is aimed at dollar-funded investors. Goldman says the last time they looked into the subject at end 2023 they recommended investors hedge their non-US equity exposure, especially in Japan. But now, they "argue US investors to reduce FX exposure but now on a broader basis ahead of the U.S. presidential election."

FX volatility is already making a comeback, and a widely referenced Deutsche volatility index - not cited by Goldman - shows FX vol is at one month highs, and moving off March's post pandemic lows. .DBCVIX

The election result in Mexico, which helped jolt the peso MXN=D3 and upcoming polls in France, and Britain to a degree, have been driving the pickup.

Goldman also argue the recent trend towards positive bond and equity correlation, which has made a traditional 60:40 portfolio, is in the mix.

"The past few years of higher inflation have made such portfolios riskier, most strikingly during the large drawdown in 2022."

"FX hedging can be a simple way to add some protection ... the dollar typically appreciates on a broad basis in periods of rising US yields and falling US equities, the painful mix for the traditionally conservative portfolio."

(Alun John)

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