‘Dollar carry trade alive and well’

On the much-debated issue of whether the dollar carry trade (a practice in which investors borrow dollars at near 0% rates in US to invest in higher-yielding markets globally) could come to an end, resulting in a stock market crash, Mobius said it (the dollar carry trade) would continue.

Renowned economist Nouriel Roubini had warned that the moment the US Federal Reserve hiked interest rates in the US, it would strengthen the dollar, which would effectively result in a stock market crash.

“The US dollar carry trade is alive and well and will continue,” Mobius said. “If you study what happened with the yen carry trade (a similar phenomenon that started in the mid-90s), you will realize that that went on a lot longer than people expected,” he said, adding that the signals were that US Fed won’t hike rates anytime soon. “So if you have differences of the kind that we are now seeing, we will definitely see a continuation of this US dollar carry trade.”

EMs offer value

Mobius said he was optimistic on EMs, which may reach their all-time highs going forward because of an increase in projected earnings, “Which is why I think it is important for people to be invested and not to hold too much cash at this stage of the game”.

Valuations in such countries, he said, were in the median: neither under-priced nor over-priced. “There will of course be a point when euphoria overcomes any doubts and we will be entering a bubble environment. That is the time when we are going to have to be very cautious.”