Emerging Asian currencies are set for a modest recovery in 2024 amid sustained elevated interest rates in major economies, China’s uneven economic rebound and potential portfolio inflow fluctuations, HSBC analysts said.
Despite an uptick in emerging Asian currencies since December on expectations of a potential rate cut by the U.S. Federal Reserve as early as March, optimism has waned in the New Year as traders re-calibrated their bets.
“The recovery path for Asian currencies is likely to be choppy. There could still be bouts of weakness against the resilient USD, especially while the Fed has actually yet to cut rates,” the analysts said in a note.
China’s economic sluggishness, amid a protracted property crisis, has become a major concern, despite Beijing’s stimulus measures to revive the beleaguered economy.
The yuan is expected to finish trade at around 7.10 per dollar by the end of the year, up from the previous forecast of 7.30.
The bank showed preference for currencies from export-oriented countries linked to the artificial intelligence boom. Among their lower yielding counterparts, HSBC favoured the South Korean won, Taiwan dollar and the Singaporean dollar.
HSBC said it was more confident about the Indian rupee among higher-yielding currencies, following the recent inclusion of Indian bonds in global bond indexes, which could potentially attract multi-billion dollar debt inflows.
The Bloomberg Index Services proposed including some Indian bonds in its emerging market local currency index from September, a development that could enhance the projected inflows from their inclusion in the JP Morgan index.
India and Indonesia are both set to hold parliamentary polls later this year, where investors will await cues on policy directions and signs of fiscal stability.
(Reporting by Archishma Iyer in Bengaluru; Editing by Dhanya Ann Thoppil)
