by winston » Tue Apr 05, 2016 7:43 am
Sell Asian currencies, advises Goldman
It is time to sell Asian currencies after their best monthly rally in more than seven years, according to Goldman Sachs Group.
"The currencies will resume declines as further easing in China and Japan is likely to push the yuan and yen to their weakest levels since at least 2008," says Kamakshya Trivedi, a strategist at the bank who correctly predicted in November that emerging markets would recover in 2016.
South Korea's won led the March rally with an 8.2 percent advance and the Malaysian ringgit's 7.8 percent jump was its biggest since 1998. A gauge of 10 Asian currencies excluding the yen rose 3 percent.
"These are good levels to short Asian currencies, especially the won, baht, Taiwan dollar, yuan and ringgit," said Goldman's chief emerging-market macro strategist in London. "There are very direct implications for emerging-market currencies in Asia from yuan moves. We forecast more weakness across this currency complex."
Developing-nation exchange rates completed their strongest month since at least 1999 as commodities rebounded and the dollar slumped on bets after the Federal Reserve signaled it will move slowly in raising US interest rates. However, Asian exports are yet to recover, raising the prospects for a new wave of devaluations across the region as the yuan depreciates against China's trade partners and expectations mount for additional monetary stimulus in Japan, according to Trivedi.
Goldman predicts a 14 percent plunge in the yen to 130 per dollar in the next 12 months, a level last seen in 2002, and a 7.4 percent drop in the yuan to 7.0 versus the greenback, which would be the weakest since May 2008.
The won will decline almost 12 percent from current levels to 1,300 in the period, according to Trivedi, who recommends shorting the Korean currency.
While the yuan has advanced 0.45 percent versus the dollar this year, its nominal effective exchange rate has dropped the most in the region, according to Westpac Banking Corp's indexes.
Source: BLOOMBERG
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