In anticipation of the European problems returning to the forefront,we have held a 5% underweight FX position in our recommendedGBI-EM portfolio for the past month. In the Asia portion of themodel portfolio, we had centered shorts on MYR and IDR. In ourleveraged portfolio, we were short rupee and rupiah, as well as weare long a call on USD/MYR and we hold a 6x12 CNY NDF steepener.
We now ask if the selloff can continue and morph into a mini-crashof the likes that we saw in September? In September, ADXY fell by4.5% as Europe fears forced overcrowded short USD/Asia positionsto be cut. So far in May, ADXY is down by 1.8%. Can this moveextend for a further 3% downside?