Weak China Growth Puts Pressure on Asian Currencies, Increasing Bearish Bets: Poll

Date: June 29, 2023

Place: New Delhi, India

Investors have escalated their bearish bets on several Asian currencies, primarily due to the sluggish post-pandemic recovery observed in China, the world’s second-largest economy. A recent Reuters poll conducted on Thursday among 12 analysts provides insights into the market sentiment.

Bearish Bets Rise on Thai Baht and Malaysian Ringgit

Bearish bets on Thailand’s baht and the Malaysian ringgit rose to their highest levels since early November. The baht’s depreciation is influenced by the uncertainty surrounding the leading prime ministerial candidate’s support for becoming the country’s next premier. The Malaysian ringgit, closely tied to the Chinese yuan due to strong trade links, has been one of the weakest-performing currencies in the region this year, experiencing a decline of approximately 5.8%.

Yuan Weakens as China’s Recovery Stumbles

Investors also raised their short positions on the yuan, reflecting the weakened consumer and private sector demand in China. The yuan has depreciated by 4.8% so far this year, affecting sentiment across Asian currencies.

Expert Analysis and Outlook

Analysts at ING note that the Malaysian ringgit’s performance is closely tied to the Chinese yuan due to strong trade links between the two countries. Experts emphasize the need for a credible economic recovery plan in China to restore confidence among consumers and investors. Fiona Lim, a senior FX strategist at Maybank, suggests that the Chinese government is likely to communicate such a plan soon to revive market confidence.

Chinese Premier’s Assurance Boosts Sentiment

Responses to the poll were predominantly received after Chinese Premier Li Qiang announced that Beijing would take steps to boost demand and invigorate markets. Li expressed optimism that China’s economic growth in the second quarter will exceed that of the first quarter and is expected to reach the annual growth target of approximately 5%.

Other Asian Currencies and Market Outlook

Short positions on South Korea’s won, the Singapore dollar, and Indonesia’s rupiah also increased, reflecting the prevailing cautious sentiment in the market. However, bearish bets on the Philippine peso eased to a more than two-month low. Analysts maintained a bullish outlook on the Indian rupee, considering it the sole outlier among the currencies surveyed.

Anticipation of Emerging Market Currency Appreciation

MIDF Research analysts anticipate a potential flow of funds back into emerging markets (EM) once the U.S. Federal Reserve no longer requires rate hikes. They maintain expectations that EM currencies will appreciate during the latter part of the year. Futures indicate an approximately 80% likelihood of a 25 basis point rate hike by the U.S. Federal Reserve in July, followed by rate stability for the remainder of the year.

Currency Positioning Survey Results:

The table below displays the net long or short positions against the U.S. dollar for each currency surveyed:

Note: The table includes positions held through non-deliverable forwards (NDFs).

Please note that the survey findings and currency positions are solely based on the opinions and positions of analysts and fund managers participating in the poll.

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