Two developments in Asia have caused us to recently change our currency strategy, and both fell outside of fundamental valuation considerations.

First, India abruptly withdrew two banknotes, which between them accounted for more than 80% of the money in use in the country’s highly cash-based economy. New banknotes were introduced, but with restrictions on availability and convertibility. This was partly logistical and partly intentional as a push to increase bank-account penetration.

We were concerned that the economic impact of the move, which was designed to also counter informal and illegal transactions and cash piles, would lead to a sharp temporary contraction in India’s rapid growth rate.

We were concerned that the economic impact of the move would lead to a sharp temporary contraction in India’s rapid growth rate.

So, we reduced our long exposure to the Indian rupee (as well as the Indian equity market) in the immediate aftermath of the announcement. Since then, however, we have seen limited impact from the removal of the bank notes on India’s economic data. Additionally, incoming information suggests the bulk of the currency holdings not exchanged for new notes have been successfully converted to bank deposits. We, therefore, have begun to re-build our long exposures in both the Indian rupee and Indian equity market.

The other development was Malaysia’s government acting to curtail offshore banks from market-making in the ringgit. This is not a market over which the Malaysian authorities have direct control, but they can nevertheless influence it via relationships with foreign banks involving domestic Malaysian asset holdings. The government’s rationale was to limit the impact of what it regards as speculative selling of ringgit, which it views as contrary to Malaysia’s interests.

While we agree with the Malaysian government that the ringgit is fundamentally undervalued and weakness is not justified over the medium term, reducing liquidity may be counterproductive, as it may cause offshore investors to exit ringgit-denominated assets.

Accordingly, we reduced long exposure to the currency, and to better navigate the now-poor liquidity in offshore forward contracts, we have switched the smaller ringgit exposure into short-duration local-currency fixed income.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2017 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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RSS FEED

Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2017 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
Cookie Policy | Social Media Disclaimer | Privacy & Security | FINRA’s BrokerCheck

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