Sharp downward moves in EM currencies hurt corporates

Sharp downward moves in a series of EM currencies during the past year have caused pain for corporates that had been under-hedged due to the high cost of carry against the US dollar. Many have now woken up to the risks, but not all are hedged against future shocks

Emerging market (EM) currencies can be difficult to predict and costly to hedge. Moves, when they happen, tend to be sharper and more painful than in G-10 currencies, and traditional hedges are often prohibitively expensive due to interest rate differentials. But a series of sharp and sudden falls in several Asian EM currencies over the past year has caused some corporates to rethink how they manage risk.

Increased volatility for EM currencies first emerged wholesale just over a year ago in May