LONDON: The Chinese yuan's tumble is stirring hopes of a long-awaited volatility boost for forex markets but any rise will be too late for the currency funds that have shut down this year, and it may be too small to hold out much hope for those that remain.
The outflow has eased somewhat this year, with US$159.08 million draining out from January to July, according to fund research firm Morningstar. But total net assets at currency mutual funds worldwide have fallen to US$6.86 billion, having declined every year but one after peaking in 2012 at almost US$18 billion.
Hedge funds, which borrow and invest to juice up returns, have been hit hard, too: just 49 now actively trade currency futures and cash forwards in the interbank market, according to the BarclayHedge index. That's down from 145 in 2008 and 53 at the end of 2018. This year for instance, as the Federal Reserve turned tail on policy tightening, forex markets were gripped by hopes of a vol turnaround. Those were dashed pretty much immediately as other central banks followed the Fed's cue. Volatility tumbled to almost five-year lows:Asset manager QTS Capital Management decided around that time to ditch spot forex trading via its flagship hedge fund, where assets had shrunk to US$11 million, down from US$20 million three years ago.
The Luxembourg fund had assets of US$8.78 million as of July 31, roughly the same as at inception three years ago, the spokesperson said, adding:"We didn't see interest in it... We didn't see it grow."