These Asian Currencies Set to Benefit From Oil Price Collapse: Credit Agricole

(Bloomberg) -- The currencies of Asian energy importers are surfacing as a recovery play in emerging markets on the premise that the oil-price slump and lower production costs will outlast the coronavirus crisis.

Currencies of South Korea, Thailand, Taiwan and the Philippines are positioned to benefit from the collapse in oil prices this year, once the world conquers the virus, according to Sébastien Barbé, head of emerging markets research at Credit Agricole CIB.

“There could be more discrimination around the story of oil,” Barbé, who's based in France, said in an interview. “Right now, all EM FX has already suffered because of the Covid crisis. The reason why Asian FX have suffered is the virus, not oil.”

Lower prices have halved Asia's oil bill on average and will facilitate the recovery in this region, “which is already leading the rest of the world in terms of health dynamics,” Barbé wrote in an earlier report. Even if Saudi Arabia and Russia patch up the dispute that triggered the oil slump, prices will be capped by weak global demand, he said.

The MSCI Emerging Markets Currency Index dropped 6% last quarter, the most since September 2015, as lockdowns triggered by the pandemic crippled the world economy and oil prices cratered. Currencies of oil exporters Russia, Colombia and Mexico, all of which tumbled at least 19% last quarter, will remain under pressure, Barbé said.

Barbé predicts a different outcome for Asian energy importers after this price slump compared with 2014-2016, when lower oil prices triggered sales of “risky” assets including emerging-market currencies. That was partly because big investors, some linked to oil-exporting nations, had to reduce their balance sheets.

“Highlighting Asia's likely out-performance makes sense,” he said.

Asian currencies will get additional support from the resilience in the yuan as China seeks to keep the currency stable in uncertain times.

“The Chinese FX policy has been a factor of stability for Asia and will likely remain so,” Barbé said.

©2020 Bloomberg L.P.

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