The currencies of Asian energy importers are surfacing as a recovery play in emerging markets on the premise that an oil price slump and lower production costs will outlast the COVID-19 pandemic.
The currencies of Taiwan, South Korea, Thailand and the Philippines are positioned to benefit from the collapse in oil prices this year, once the world conquers the coronavirus, Credit Agricole CIB head of emerging markets research Sebastien Barbe said.
“There could be more discrimination around the story of oil,” France-based Barbe said in an interview. “Right now, all EM FX [emerging markets foreign exchange] has already suffered because of the COVID crisis. The reason why Asian FX have suffered is the virus, not oil.”
Lower crude prices have halved Asia’s oil bill on average and would facilitate the recovery in the region, “which is already leading the rest of the world in terms of health dynamics,” Barbe wrote in an earlier report.
Even if Saudi Arabia and Russia patch up their dispute, which triggered the oil slump, prices would be capped by weak global demand, he said.
The MSCI Emerging Markets Currency Index last quarter dropped 6 percent, the most since September 2015, as lockdowns triggered by the pandemic crippled the global economy and oil prices cratered.
The currencies of oil exporters Russia, Colombia and Mexico, all of which last quarter tumbled at least 19 percent, would remain under pressure, Barbe said.
Barbe predicted a different outcome for Asian energy importers after this price slump compared with 2014 to 2016, when lower oil prices triggered sales of “risky” assets, including emerging market currencies.
“Highlighting Asia’s likely outperformance makes sense,” Barbe said.
Asian currencies would get additional support from the resilience of the yuan, as China seeks to keep its currency stable in uncertain times, Barbe said.
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