StanChart Says FX More Efficient Than Stocks to Trade Swings

(Bloomberg) -- Investors who want to trade big swings in risk sentiment may want to venture outside the typical U.S. stocks play and consider currencies, according to analysts at Standard Chartered Plc.

An analysis of how the S&P 500 Index and currencies traded relative to their volatility indicated that some foreign exchanges were more efficient in capturing the shifts through the Feb. 19 to March 23 period, strategists Ilya Gofshteyn and Steve Englander wrote. The British pound, the Malaysian ringgit, and Norwegian krone offered a better risk-adjusted return whether during the sell-off or the partial rebound in markets, they said.

“This suggests that investors have alternatives to going short or long the S&P, when they anticipate a large shift in sentiment,” they wrote in a report Wednesday. While the analysis is focused on just a short period, they argued there could be longer-term implications.

StanChart Says FX More Efficient Than Stocks to Trade Swings

Currency markets have seen lower volatility in recent years, damping potential returns for traders, while the U.S. equity markets have mostly kept climbing. That’s dented the appeal of investing in FX given other assets offered better returns and less volatility.

“Our value proposition for FX investing is that the asset class can still offer robust returns, particularly on a risk-adjusted basis,” the strategists said. “We believe this analysis provides compelling evidence to that effect.”

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