Goldman says sell Asian currencies, after best rally since 2008

TAIPEI • 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  Mr Kamakshya Trivedi, a strategist at the bank who correctly predicted last November that emerging markets would recover this year.

South Korea's won led the March rally with an 8.2 per cent advance and Malaysia's ringgit's 7.8 per cent jump was its biggest since 1998. A gauge of 10 Asian currencies excluding the yen rose 3 per cent.

"These are good levels to short Asian currencies, especially the won, baht, Taiwan dollar, yuan and ringgit," Mr Trivedi, Goldman's chief emerging market macro strategist in London, told Bloomberg.

"There are very direct implications for emerging market currencies in Asia from yuan moves. We forecast more weakness across this currency complex."

The Singapore dollar gained nearly 4 per cent in March. It was at its lowest at 1.3462 per US dollar on March 31, and at 1.3519 yesterday.

Developing nation exchange rates had their strongest month since at least 1999 as commodities rebounded and the greenback slumped on bets after the Federal Reserve signalled it will move slowly in raising US interest rates.

However, Asian exports are yet to recover, raising the prospects for a fresh 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 Mr Trivedi.

Goldman predicts a 14 per cent plunge in the yen to 130 per dollar in the next 12 months, a level last seen in 2002, and a 7.6 per cent drop in the yuan to 7 versus the greenback, which would be its weakest since May 2008.

The won will fall almost 12 per cent from current levels to 1,300 in the period, said Mr Trivedi, who recommends shorting the Korean currency as the best way to position for the projected reversal in Asian exchange rates.

The yen and won rose in afternoon trade yesterday as investors maintained bets that the Fed will proceed cautiously on raising rates.

While the yuan has risen 0.45 per cent versus the dollar this year, its nominal effective exchange rate has dropped the most in the region, Westpac Banking's indices show.

A version of this article appeared in the print edition of The Straits Times on April 05, 2016, with the headline 'Goldman says sell Asian currencies, after best rally since 2008'. Print Edition | Subscribe