Asian currencies are more prone to larger losses in the short term as investors seem to underestimate risks from the war in Ukraine, according to Morgan Stanley, as reported by Bloomberg.
“A combination of geopolitical uncertainty and higher oil prices should lead to higher inflation and lower growth in Asia,” analysts including Min Dai and Belle Chang wrote in a research report.
“The impact on Asian markets will be via FX, given that FX is the main shock absorber.”
Emerging Asian currencies have fallen along with equities in recent weeks amid Russian invasion in Ukraine has pushed up commodity prices to a large extent. This also underscores the heightening concerns of constrains to global economic growth.
Major oil importing nations including India, Japan and the Philippines has been hit the hardest with this week rupee sinking to record.
Morgan Stanley has lowered most its Asian currencies forecasts for the next three months, however still expects the dollar to weaken in the second half of once geopolitical tensions ease.
One of the strategies that Morgan Stanley has recommend is to go long on the offshore yuan against the rupee as the rupee is sensitive to oil price movements. Another investment strategy is to long the yen against the South Korean won and add a long Malaysian ringgit versus the Thai baht trade to its portfolio.
