Strategies · Core
Currency Value Factor — PPP Strategy
Long undervalued currencies and short overvalued ones versus purchasing-power parity or real-rate gaps — FX value, slow and mean-reverting.
Definition
Measure real exchange-rate deviation from PPP (or a 5-year reversal). Long cheap, short rich. Holding periods are long; noise is high. It is not a 1-month signal.
Why it matters
Value is the ballast to FX carry and momentum. It can look dead for years and then pay in a realignment.
Case
A high-inflation EM that looks ‘cheap’ on PPP and stays cheap because the regime is the discount. PPP is not a clock.
How to read it
Which PPP (CPI vs traded goods), horizon, and convertibility. Cheap plus a peg about to break is not cheap.
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