Hedge Funds Snub Peso Amid Greek Worries

Bloomberg is reporting this morning that hedge funds are seeking cover from the Mexican peso, “cutting their bullish bets on the Mexican peso by the most in 10 months” due to concerns that stagnant growth in the U.S. economy will take a toll on growth in exports from our neighboring lands south of the border.

More from Bloomberg, “Wagers on the peso strengthening against the dollar outnumbered bets on a decline in the futures market by 48,163 contracts last week, down 47 percent from the same period ended June 7 and the biggest percentage decline since August, according to the Commodity Futures Trading Commission. The slump in the peso over the past month helped spark a 1.6 percent loss in dollar terms in local-currency Mexican government bonds, according to Bank of America Corp. (NYSE:BAC) Brazilian real-denominated notes gained 2.7 percent in the same period.”

The recent downsize in demand for the peso leaves the Mexican currency as the second worst performing emerging market item out of a total 25 currencies. The brewing bear market is likely related to worries of a Greek default, which has seen investors grow more and more reluctant to place funds in high-yield emerging market bonds.

According to Marco Roca, an emerging markets strategist at Deutsche Bank AG (DBK), all hope for the peso is far from lost, “The peso is attractive compared with other currencies in emerging markets…It’s clearly a country where there is no risk of capital controls. The fundamentals for Mexico are still positive in terms of growth, economic institutions and subdued inflation.” The peso grew by .4% compared to the dollar this year, and has posted the second highest growth (10.8%) of all Latin American currencies by that measure since 2009.

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