FX Flows Weekly: Investors buy EMFX against USD selling

Research evidence excerpt

FX Flows Weekly: Investors buy EMFX against USD selling

Citi’s Take

Weekly avg indexed flows, latest 5 weeks across EM

Citi Flows – Overall, client flows were supportive of riskier currencies in the past regions

week. USD flows were net flat for the week despite strong selling by leveraged

accounts. This was offset by real money, banks, and corporates buying. EM

aggregate saw strong inflows, heavily driven by leveraged accounts. All three

regions (Asia, CEEMEA, and LatAm) saw net inflows primarily driven by leveraged

accounts, though LatAm saw the strongest indexed inflows.

Quant – Flows currently favor PLN, PHP & CLP against TRY, CNY & KRW.

Traditional carry is crowded in 1m, 3m & 6m leveraged flows. Momentum is

crowded in 3m & 6m real money flows. Value (PPP) is crowded in 1m leveraged

flows. Vol-adjusted carry (EMFX 5x5) positioning is crowded in 1m, 3m & 6m

tenors.

Cross-asset vol is below 4-sigma. In terms of crowded basket at risk from a vol

spike, HUF, BRL & TRY are the most vulnerable, having been net bought by our

investor base. CNY, PLN & CZK saw the most outflows over the last six months.

G10 – Our flows indicate an acceleration of leveraged USD selling. Elsewhere,

leveraged investors flipped from selling to buying JPY.

sia – Investor flows in EM Asia exhibited a clear divergence between real money

nd leveraged investors, with the latter remaining net buyers against real money

utflows. Leveraged inflow was particularly evident in PHP and IDR over the past

eek.

atAm – In a week marked by FOMC and the end for now of the tail risk of more

ggressive policy tightening by the Fed, we saw large leveraged inflows sided by

eal money demand. Leveraged inflow was in BRL, CLP and MXN. Real money

dded COP longs.

Source: Citi Research 2