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The Philippine peso and Indonesia’s rupiah are the Asian carry trades most insulated from the coronavirus outbreak, as the pandemic shows no sign of abating.
That’s based on comparative performance before and after Jan. 20, when concerns about the disease escalated with reports that human-to-human transmission was occurring. The following graphic shows the risk-adjusted carry return (which includes implied yield and currency spot returns adjusted for volatility) of Asian currencies over the eight business days to Friday, Jan. 17. The top performers were the onshore yuan, rupiah and the offshore yuan, with trades in yen, peso and baht delivering losses.
Then, below we have the same basket from Jan. 20 until Jan. 29. The only profitable trades are yen, peso and rupiah, while the largest risk-adjusted losses are for the Thai baht, Hong Kong dollar and Taiwan dollar.
Short-term implied yields were relatively stable during the period, so deterioration in performances was driven by the general spike in volatility, and declines in spot rates for Asian currencies. Countries with the largest trade and tourism exposure to China were hardest hit, especially Thailand, where Chinese tourist receipts amount to around 3.7% of gross domestic product.
With the outbreak showing few signs of abating soon, volatility and trade exposure will remain key performance drivers across Asian currencies.
NOTE: Marcus Wong is an EM macro strategist, who writes for Bloomberg. The observations he makes are his own and not intended as investment advice
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