Halister News

(Bloomberg) -- Indonesian rupiah and Malaysian ringgit are the most vulnerable Asian currencies as high foreign ownership of domestic bonds leave them at risk to speculation Trump will ramp up fiscal spending and accelerate pace of Fed rate hikes, analysts say.

• Scotiabank plans to downgrade their Asia FX forecasts while ANZ will be reviewing them
• Foreign holding of Indonesian govt debt stand at 38.5%, while foreigners hold 36.7% of Malaysian govt bonds, compare to 4% for India and 3.8% in China, according to HSBC
• Bond outflows set to rise in coming weeks as price action in EM funds turn more negative and investors are pricing in a further increase in long-end UST yields, Standard Chartered says
• IDR drops 3.1% earlier today, most in 3 years, triggering BI intervention to support the currency
• Gap between spot USD/MYR and 1-month NDF is widest in over a decade; see story

Key Views

• RBC (Sue Trinh, head of Asia FX strategy)
  • USD/Asia will all trade higher from here; bank’s current forecasts already embedded volatility which market was not pricing in
  • Currencies with high share of foreign ownership in local govt bond mkt will suffer, such as MYR, IDR
  • Economies reliant on freer trade, including SGD, TWD, KRW, will suffer
  • Countries with higher share of domestic demand relative to external demand will do better; INR, PHP are in that category, but extent to which latter would benefit will be tempered by strained relations with U.S.
  • Forecast USD/CNY at 7.5 next year, and that will be a constant drag on Asian FX

• Standard Chartered (Divya Devesh, Asia FX strategist)
  • Currencies which are more dependent on bond-related flows and/or those with a large foreign holding of local-currency bonds will be in focus - IDR, MYR; rise in U.S. yields makes those positions look less attractive
  • Even if there aren’t sharp outflows, there could be hedging related USD demand, particularly for IDR where a large portion of foreign holding of bonds is likely FX unhedged

• Scotiabank (Qi Gao, Asia FX strategist)
  • MYR, IDR more susceptible given their high foreign ownership of local govt bonds
  • Surging inflation expectations could support dollar for now; more declines seen in EM Asian currencies ahead of Dec FOMC meeting; will lower Asia FX forecasts

• ANZ (Khoon Goh, head of Asia research)
  • Higher U.S. yields are spurring unwind in carry trades
  • KRW susceptible given sensitivity to equity flows, and IDR and MYR are hit today as investors hedge their bond exposure, where there is high foreign bond ownership