How to hedge EM currency risk only when devaluation is genuinely imminent — and stay unhedged the rest of the time to avoid the cost of carry?
Monitor currency devaluation risk
Devaluation risk across your EM currency exposures is monitored on a regular basis — so you know when to hedge and when not to.
Mexico
Brazil
Poland
South Africa
Turkey
Russia
Illustrative example. ↑↓ — status change over the month. ECO — KR macro signal; RSI — market RSI signal; Abnorm. — non-normality signal.
Carry cost vs. downside protection
A conditional hedging strategy — applied only when the signal is active — can be benchmarked against two alternatives: staying unhedged or hedging permanently.
↑ Max drawdown
Reporting currency
Revenue currency
Hedge ratio and maturity structure
Hedge ratio by horizon
Hedge profile
A staggered forward ladder is opened when the signal is triggered and rolled monthly while active — no new forwards are entered once the signal turns off.
Should We Hedge Now
The dynamic hedging strategy activates only when two independent signals confirm elevated risk simultaneously — a macro signal and a market signal. When neither fires, the company stays unhedged to avoid carry cost. Both signals are reassessed on a regular basis.
Macro Indicator
Below
threshold; economy healthy
Market Indicator
Above
threshold; sustained adverse market moves
Recommendation
Do not hedge
both conditions not met simultaneously
Finding the Best Strategy for Each Currency
Three strategies: Unhedged (spot), Permanent forward hedge, and Early Warning Signal (EWS) strategy described above — which enters the staggered forward ladder only when the signal is active and remains unhedged otherwise.
Volatility reduction vs unhedged
−35%
13.6% → 8.9% annualised (EWS strategy)
Max drawdown reduction vs unhedged
−34%
17.3% → 11.4% per month (EWS strategy)
Demo is based on historical data. In the full version — current data, your currency, your company's portfolio.