"Selling off the US dollar" transactions fall out of favor, institutions adjust their layout of assets in emerging markets.

The rebound of the US dollar in July has led some emerging market investors to believe that the dollar will continue to strengthen in the coming months. Data shows that the Bloomberg US Dollar Spot Index rose by 2.7% in July, ending six consecutive months of decline, while the Morgan Stanley Capital International (MSCI) Emerging Markets Currency Index fell by 1.2%. As the rising dollar dampened investors' optimism towards emerging market assets, fund managers and analysts are reevaluating the "selling dollar" trading strategy. Barclays advises clients to avoid shorting the US dollar against Asian currencies, and instead recommends going long on the US dollar against some lower-yielding currencies in the region. Barclays strategists stated, "We are still reluctant to bet that the US dollar will weaken against Asian currencies during the summer. Instead, we suggest going long on the US dollar against some overvalued, high-risk, low-yielding currencies in the region." Barclays also prefers to completely avoid so-called "relative value trades" involving the US dollar, such as betting that the Singaporean dollar will weaken against the Chinese yuan, or shorting the Thai baht against the South Korean won. Fidelity International states that as US interest rates may remain high for an extended period, the attractiveness of the US dollar as a funding currency for carry trades is decreasing, and suggests considering lower-cost alternative funding currencies. Lei Zhu, head of fixed income for Fidelity in Asia, stated, "Given the potential for US interest rates to remain relatively high for some time, investors may want to consider using other currencies with lower funding costs and similar risk characteristics." The alternative options she mentioned include borrowing in Hong Kong dollars (whose short-term interest rates are lower than the US dollar) or even the Chinese yuan. T. Rowe Price Group, a US-based investment management firm, indicates that as a tactical trade, the company prefers US dollar-denominated emerging market bonds over local currency bonds. Data shows that last month, the performance of US dollar-denominated emerging market bonds outperformed local currency bonds, with the Bloomberg Emerging Markets US Dollar Bond return rate at 0.9%, compared to -0.9% for local currency bonds. Leonard Kwan, a fund manager for T. Rowe Price Group in Hong Kong, stated, "Currently, I prefer holding US dollar-denominated emerging market bonds because their yields are more attractive." He pointed out that in the next three to six months, the US dollar might enter a period of consolidation, which could pose challenges for local currency bonds' returns.