JPMorgan Sees Asian Currencies Extending Rout on Economy
January 17, 2014 Leave a comment
JPMorgan Sees Asian Currencies Extending Rout on Economy
Asian currencies are poised to extend declines amid concern an increase in borrowing costs in China and a weakening yen threaten economic growth in the region, JPMorgan Chase & Co. said.“A trend of bearish” Asian currencies will “kick off,” JPMorgan analysts including Hong Kong-based Bert Gochet wrote in a report yesterday. “Worries over China’s tight liquidity stance generate downside risks to growth.”
China’s money market rates jumped in December to a six-month high, raising concern that tighter lending conditions may slow the world’s second-largest economy. The yen’s 15 percent decline over the past year is fueling speculation that a cheaper currency may help Japanese companies to grab export market shares from its competitors in South Korea and Taiwan.
The Philippine peso touched the weakest level since 2010 yesterday on concern the Federal Reserve may accelerate the withdrawal of stimulus as the U.S. economy improves. The Malaysian ringgit posted its biggest two-day drop since November, while the South Korean won fell 1.3 percent from the five-year high set in December.
The Fed started reducing its monthly bond purchases in January by $10 billion to $75 billion, reducing capital flows to emerging markets. The MSCI Emerging Markets Index of stocks has slid as much as 16 percent since May 22, when the Fed signaled its stimulus program could be trimmed.
Based on conversations with customers, JPMorgan said local bond funds haven’t received any inflows so far this year. This would be the first time it happens in January since 2008, JPMorgan said, citing data from research company EPFR Global.
‘Purest Expression’
The analysts recommend selling the ringgit as the “purest expression of positioning for a lack of EM local bond inflows.” Foreign investors held 45 percent of ringgit-denominated bonds in November, the most among 10 developing countries, making it susceptible to capital outflow, according to Credit Suisse Group AG.
JPMorgan advises further “underweight” the Philippine peso, saying local interest rates are too low. Investors should also exit a bet that South Korean won will rise as yen weakens.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
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