Asia FX Heat Map: THB and KRW attractive, IDR and MYR still vulnerable

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The dust has somewhat settled after an unnerving August and it’s now appropriate to ascertain whether the sell-off in Asian currencies against the backdrop of weak economic growth, trade and oil prices has created some relative value opportunities.

To that effect I have created a framework of seven broad variables to compare Non-Japan Asian currencies (see Figure 1). The variables, detailed below, are i) currency valuation, ii) currency seasonality, iii) correlation to the Chinese renminbi, iv) the performance of merchandise exports, v) the economy’s exposure to oil and gas prices, vi) the performance of industrial output and vii) external debt. Of course this list is not exhaustive and individual variables can be weighted differently, but it’s a good place to start.

At this juncture there are no currencies which scream out as very cheap or expensive but I will update the data regularly, focusing on obvious trend changes.


Figure 1: An Asian currency heat-map
(green indicates potential currency positives, yellow potential currency negatives)Asian currency heatmap


Sources:, Bank for International Settlements,, national statistical offices, national central banks


  1. Positive number is appreciation/depreciation of local currency;
  2. NEER is nominal effective exchange rate;
  3. REER is real effective exchange rate (the NEER deflated by relative inflation) and latest data point is July 2015;
  4. Calculated as the five-day average of the three-month correlation between the daily change in the CNY versus the USD and the daily change in the local currency versus the USD;
  5. Seasonally-adjusted exports of goods (non-oil domestic exports for Singapore), latest monthly data which are July for all countries except Korea (August 2015) and Philippines (June 2015);
  6. Assuming that the average 22% fall in the price of WTI and Brent crude since mid-June is permanent;
  7. Latest monthly data which are June 2015 for Indonesia, India, Malaysia and Philippine and July 2015 for China, Korea, Singapore, Taiwan and Thailand;
  8. Calculated as year-on-change in the last three months minus the year-on-year change in the previous three years;
  9. As per IMF definition all debt held by foreigners, including local-currency debt (see; data pertains to end-Q4 2014 for China, end-March 2015 for India, Philippines and Thailand and end-June 2015 for Indonesia, Korea, Malaysia and Taiwan;
  10. Debt with an original maturity of up to and including one year.


The Thai Baht (THB) looks attractive. The THB is not particularly correlated to the CNY, the economy is a significant beneficiary of the fall in oil and gas prices and while merchandise exports have contracted sharply in recent months, they have held up reasonably well compared to a year ago. The risk is that with industrial output shrinking, the central bank may cut a policy rate (1.5%) which remains somewhat high relative to current CPI-inflation (-1.2% year-on-year). Furthermore, the THB has historically been quite weak in September, performing more strongly in December thanks in part to a seasonal pick-up in worker remittances.

The Korean won (KRW) looks attractive. The won has already weakened materially in the past three months yet Korea has still modest external debt and benefits from the fall in oil and gas prices. The risk is that very weak industrial output and exports incentivise the central bank to loosen monetary policy further by cutting its policy rate 25bp at its policy meeting on 11th September. The won has also historically been weak in September and October, depreciating on average by about 0.55% and 0.87% respectively versus the US dollar since 2000 (compared to an average monthly depreciation of 0.05%).

The Indonesian rupiah (IDR) looks vulnerable. The fall in the demand for and price of commodities, including oil, gas and coal, has crushed total exports and Indonesia’s external debt is elevated particularly when measured against modest central bank FX reserves. Moreover the IDR has historically been weak in September, depreciating on average by about 1.5% versus the US dollar since 2000 – more than three times as much as the average monthly depreciation of 0.4%. On the plus side the IDR has already weakened significantly and industrial output has held up.

The Malaysian ringgit (MYR) looks vulnerable. The MYR has historically been quite weak in September. The USD-value of exports has collapsed and the fall in oil and in particular gas prices points to further pressure on exports. Furthermore, Malaysia’s external debt, both short and long-term, is among the highest in Asia as a percentage of GDP and of central bank FX reserves. The value of FX reserves has fallen by about a quarter in the past two years even stripping out currency valuation effects, according to my estimates. The political situation, while difficult to quantify, adds a layer of uncertainty to policy-making and the currency. More positively perhaps, the MYR has already depreciated significantly in recent months even in the context of weak emerging market currencies. Furthermore, the MYR has historically been quite strong in October, appreciating on average by 0.4% versus the USD.

The Chinese renminbi (CNY) looks somewhat attractive. China still has modest amounts of external debt and benefits (albeit reasonably modestly) from lower oil and gas prices and the CNY has over the past fifteen years enjoyed positive seasonality in the month of September. However the unpredictability of monetary policy in the face of depressed exports and domestic growth presents a clear risk.

The Indian Rupee (INR) looks somewhat attractive. India’s exports and in particular industrial output have held up better than in most Asian economies. Measurement issues aside, India’s industrial output growth of 3.2% year-on-year in Q2 compares favourably to average growth of 1.3% yoy in the previous three years. Moreover, India’s external debt ratios remain comfortable with short-term external debt only 4.2% of GDP. However, the INR has historically been weak in September, depreciating on average by 0.75% versus the USD – more than three times the monthly depreciation since 2000. It is also quite highly correlated to the CNY leaving it vulnerable to another CNY devaluation. The INR has been more robust in October, appreciating by an average 0.25% versus the USD.

The Philippines peso (PHP) looks somewhat vulnerable. The PHP has historically been weak in September, depreciating on average by 0.4%. While Philippines exports have held up well relative to other Asian economies industrial output contracted 6.4% year-on-year in Q2. However, the Philippines benefits (albeit modestly) from lower oil prices and its external debt ratios are amongst the lowest in Asia.

The Singapore dollar (SGD) looks somewhat vulnerable. Exports have weakened sharply, as has industrial output although admittedly the industrial sector plays a less prominent role than in countries such as Korea and Taiwan. The SGD tends to be quite weak in September-October. More positively Singapore’s economy is a major beneficiary of the fall in the oil price and external debt is not really an issue

The Taiwan dollar (TWD) looks somewhat vulnerable. It is quite highly correlated to the CNY and has typically been weakest in September, depreciating on average by 0.5% versus the USD. Exports and industrial output have weakened in recent months and inflation has remained negative year-to-date which ups the risk of the central bank (CBC) cutting its policy rate at its next meeting on 24th September. The CBC’s real policy rate (ex-post) remains near multi-year highs at about 2.5%. In terms of external vulnerability, Taiwan’s short-term external debt is quite high at about 31% of GDP but its central bank FX reserves are very large at just under 80% of GDP. This gives the CBC much ammunition to defend the currency or at the very least smooth out FX volatility.

Variables explained

1. Currency valuation

The idea is that if a currency has already weakened a lot, it may attract relative-value investors and policy-makers may have an incentive to limit further depreciation. CNY strength in the past year was arguably one motivation behind the Chinese central bank (PBoC) devaluing the CNY on 11th August. The variable is subdivided into three sub-categories to better capture the changes in currencies’ relative competitiveness in the past one, three and twelve months: the change versus the USD and changes in the nominal effective exchange rate (NEER) and real effective exchange rate (REER). Changes versus the USD are the easiest to analyse but Asian central banks tend to give greater weight to how their currencies are trading relative to the currencies of their main trading partners (the NEER), for which I provide daily data. The REER goes a step further by stripping out relative inflation from the NEER, although one drawback is that the data are by definition monthly and thus less timely.

2. Correlation to CNY

The idea is that with the risk tilted towards the PBoC again devaluing the CNY, currencies typically correlated to the CNY are at greater risk. Perhaps unsurprisingly, Asian currencies are positively correlated to the CNY, with the INR and TWD exhibiting the highest correlation and the THB the lowest.

3. FX Seasonality

The idea is to test whether Asian currencies exhibit a degree of seasonality from one month to the next – i.e. whether they tend to appreciate or depreciate disproportionately in a particular month, perhaps due to the underlying seasonality of FX flows, such as tourism receipts or worker remittances, or timing of holidays.

4. Exports

The idea is that if merchandise exports – which remain key to Asian economies – are contracting, policy-makers may have a greater incentive to loosen monetary policy via currency weakening and/or interest rate cuts. Exports have weakened across Asia in the face of weak global demand (see Chinese Trade Tantrum). Perhaps unsurprisingly the USD-value of exports from Indonesia and Malaysia – commodity exporters – has receded the fastest. The Philippines’ exports have seemingly held up the best but note that the last data point available is for June and exports were weak in July across Asia and very weak in Korea in August.

5. Exposure to oil and gas

The idea is that the collapse in oil and gas prices will hurt the net trade balance of oil and gas exporters, such as Malaysia, but benefit the net trade balance of large importers such as Singapore. I estimate that the 22% fall in the average price of WTI and Brent since mid-June, if permanent, will improve Singapore’s annual net trade balance by about 4.3 percentage points of GDP. Conversely it will dent Malaysia’s by about one percentage point of GDP. This rough estimate does not take into account substitution and price effects but does provide a helpful yardstick.

6. Industrial output

The idea is that if industrial output is contracting, policy-makers may have a greater incentive to loosen monetary policy via currency weakening and/or interest rate cuts. Admittedly, industrial output plays a smaller role in countries such as Singapore than in large industrial producers such as China, Korea and Taiwan.

7. Total and short-term external debt

The idea is to ascertain a country’s vulnerability to a number of factors, such as a stronger US dollar, higher interest rates and deterioration in credit conditions. A country may be more vulnerable if the bulk of its debt has a short-term maturity (i.e. less than a year).

This static analysis admittedly does not factor in important considerations such as the type of debt or nature of the debt holders and in some cases external debt data are released with a long lag (for example China’s latest external debt data pertain to end-2014). But it does provide a useful snapshot of potential pressure points. Total and short-term external debt are measured relative to Gross Domestic Product (GDP) and the central bank’s FX reserves (a crude measure of assets versus liabilities). Singapore is excluded as the official sector has no external debt and the private sector’s external debt is mostly in the form of banking currency and deposits – a reflection of Singapore’s offshore banking status.

Olivier Desbarres currently works as an independent commentator on G10 and Emerging Markets. He has over 15 years’ experience with two of the world’s largest investment banks as an emerging markets economist, rates and currency strategist.

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