Shorting the crown

Czech National Bank Gov. Zdeněk Tůma told the Czech CFA Society that many investors are holding crown-denominated assets, despite the negative interest-rate differential with the eurozone, because they expect the crown to appreciate and make up the difference. One asset manager who sees profit in the Czech crown, but for another reason, is Heribert Müller of Heribert Müller Trust AG. He argues that the crown's 30% appreciation vs. the euro since Dec. 1997 is coming to an end. The appreciation has lasted 109 months, he said, and a reversal could last at least two years and perhaps see the crown drop to Kč 31.77/euro (compared to Kč 28.17 today). This would benefit carry-traders who borrow in crowns to invest in euros at a higher interest rate. Müller predicts that the arbitrage opportunity means the crown will become the favorite new debt currency of speculators. Which could throw a lot of currency and budget forecasts way out of line. [Czech Republic depreciation fluctuations Certified Financial Analysts]