Asia FX depreciation pressures to continue into 2017 - Nomura

Research Team at Nomura expects Asia FX depreciation pressures to continue into 2017, mainly because of shifting global monetary policy (US Fed hikes/Trump and ECB/BOJ tapering concerns) and the risk of further unwinding in foreign portfolio holdings.

Key Quotes

“Rising global rates, additional political shocks (possibly in Europe) and local FX weakness could add to disorderly deleveraging risks in Asia’s foreign currency loans. The other source of pressure is likely to emanate from China, where RMB depreciation will likely continue, while stable China growth is already a broad consensus view. Across the region, we expect broader outperformance of South/Southeast Asia FX (total return basis) versus Northeast Asia, as there would likely have been some adjustment in foreign portfolio positions/external liabilities. We also expect relatively strong growth differentials in South/Southeast Asia (namely INR, IDR and PHP) versus Northeast Asia, increased China macro/FX risks and high debt to add to Northeast Asia FX underperformance risk.”