T3 Index unveils ‘E8’ emerging markets foreign exchange benchmark

Jun 5th, 2017 | By | Category: Alternatives / Multi-Asset

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T3 Index has launched the E8 Index, a benchmark for the performance of the world’s eight largest emerging market currencies. The index tracks highly liquid three-month foreign exchange futures contracts, enhancing the investable nature of the index and making it suitable to underlie future investment products such as exchange-traded funds.

T3 Index unveils 'E8' emerging markets foreign exchange benchmark

The eight emerging market currencies included in the E8 Index are the Chinese yuan (pictured), the South Korean won, the Indian rupee, the Mexican peso, the Brazilian real, the Russian ruble, the Turkish lira and the South African rand.

The eight emerging market currencies included in the E8 Index are the Chinese yuan, the South Korean won, the Indian rupee, the Mexican peso, the Brazilian real, the Russian ruble, the Turkish lira and the South African rand. The weightings of individual currencies in the index are adjusted annually according to changes various country characteristics including foreign exchange turnover (50%), GDP (25%) and trade statistics (25%).

Compared to other benchmarks in this asset class, the E8 index has a number of distinct advantages. Firstly, it tracks the ”core” emerging market countries only, making it a suitable benchmark for investors who prefer to limit their exposure to only those countries. Secondly, investments tracking the index may provide a superior means of investing in major emerging market countries whose bond market may be inaccessible or illiquid (such as China). Also, in a rising interest rate environment, it is far more preferable to invest in short duration instruments than long dated bonds in order to limit potential capital losses – by focusing on short-term contracts, the index seeks to minimize the duration risk of the portfolio.

Simon Ho, CEO at T3 Index, said: “We are really excited about the E8 Index because it overcomes the many barriers to investing in emerging markets. This index provides a simple, liquid and transparent way for global investors to gain exposure to the core eight emerging market countries in a single trade.”

John Bennett, general manager, global institutional sales & research at National Australia Bank, added: “The E8 Index fills a much-needed gap in the market as investors increasingly want to capitalise on the opportunities presented by emerging market economies.”

Emerging markets foreign exchange dealer Tullet Prebon Information, a division of TP ICAP, the world’s largest interdealer broker, provides the data for the E8 index suite.

This index is the first in a family of emerging markets foreign exchange benchmark indices to be launched by T3 Index that will include regional sub-indices and a volatility series.

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