EM carry trade headed for bust

Moscow

INVESTORS reaping handsome returns on emerging-market currencies this year might do well to heed a warning once made by Harvard economist Jeffrey Frankel, who likened carry trading to "picking up pennies in front of a steam roller".

Economic theory - and history - suggest the strategy of borrowing where interest rates are low to invest in high-yielding currencies is prone to the risk of a sharp reversal when too many investors pile into the trade.