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Due to popular demand, T3I is excited to launch a series of Foreign Exchange indices for Emerging Market (EM) currencies. The flagship, USD denominated, E8 index is first of its kind as it focuses on eight of the most liquid emerging market currencies against the US dollar covering the major EM countries of the world today. They include the Chinese Yuan, the South Korean Won, the Indian Rupee, the Mexican Peso, the Brazilian Real, the Russian Rouble, the Turkish Lira and the South African Rand.
Compared to other benchmarks in this asset class, the E8 index has a number of distinct advantages:
1. It invests in the ”core” EM countries only, making it a suitable benchmark for investors who prefer to limit their exposure to only those countries;
2. It invests in major EM countries whose bond market may be inaccessible or illiquid (e.g. China);
3. It invests in 3-month FX forwards which have very liquid secondary trading markets;
4. In a rising interest rate environment, it is far more preferable to invest in short duration instruments than long dated bonds in order to limit potential capital losses.
At the end of each year we adjust the weighting of individual currencies according to the following three factors:
BIS Triennial Central Bank Survey of FX turnover (50%)
World Bank published country GDP (25%)
Trade (import and export) statistics (25%).