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Strategy post-G20, capital flows and currencies

|Includes: BZF, IDX, PLND, PowerShares DB USD Bear ETF (UDN)

As expected, the G20 did nothing to end the currency wars. The question is where we go from here. Tim Seymour discusses in this Video.

Despite the lack of resolution coming out of Seoul over the weekend, there is more to this trade than just shorting the dollar via leveraged currency ETFs like UDN, which theoretically appreciate when the dollar declines:

For one thing, traders can watch the countries where fund flows remain strong and figure that stronger currencies foreshadow stronger equity markets ahead. (Remember, currencies are leading equities in many emerging markets.) Strong flows are being reported in the Polish zloty, Argentine peso and Indonesian rupiah, among others.

Between these capital flows and the strong economic fundamentals in these markets, specialized funds like PLND for Poland or IDX  for Indonesia may be getting even more interesting -- and for Argentina, your standard basket may get a new bid. On the other hand, Brazil and Thailand have moved a lot on currency flows, and their respective governments are getting very proactive on capital controls.

As Brasilia and Bangkok deliberately weaken their currencies, future upside for the real or the baht may be hard to come by. Not a good time to go long on the real ETF BZF:


Disclosure: no positions