While emerging market currencies have not been immune to the current bout of global risk aversion, the fundamental improvements undertaken by emerging nations over the past decade have enabled them to weather the current tumult with far greater market confidence than in the past. Local currency denominated investments in these countries allow investors to capture high real local interest rates and attractive interest rate differentials as compared to U.S. dollar interest rates. In addition, as the emerging economies remain well-positioned for further fundamental improvements, investors in this strategy may benefit from an appreciation of these currencies, especially in an environment of increasing secular pressure on the U.S. dollar. Currency exposure can also provide important portfolio diversification benefits due to low correlations with other asset classes.
PIMCO’s Emerging Markets Currency Strategy invests primarily in the currencies of, and fixed income instruments denominated in the currencies of, developing markets. PIMCO considers a developing market to be any non-U.S. country, excluding those countries that have been classified by the World Bank as high-income OECD economies (the current per capita Gross National Income (GNI) cut off level is defined by the World Bank as $11,906. In addition, PIMCO may consider additional countries as emerging market countries, based on a broader assessment on their development stage).