Sentiment towards emerging Asian currencies deteriorated sharply in the last two weeks as expectations of higher US interest rates sent the dollar higher, prompting investors to dump regional stocks and bonds, a Reuters poll showed.
For the first time in more than nine months, sentiment on all of the nine regional currencies covered in the Reuters poll turned bearish on fears of further capital outflows. The dollar has been bolstered by views that President-elect Donald Trump will ramp up fiscal spending and reflate the economy. Selling of emerging market assets also has been compounded by fears that Trump's protectionist stance could hurt Asia's export-reliant economies or even trigger a trade war.
Bearish bets on China's yuan are likely the largest since early January, according to the survey of 16 fund managers, analysts and currency traders conducted between Tuesday and Thursday. The renminbi hit an 8-1/2-year low on Thursday as the People's Bank of China set its daily guidance rate at its weakest since June 2008. It has now lost more than 6 percent against the dollar so far this year, with selling accelerating since Trump's November 8 election ignited the dollar. Malaysia's ringgit saw the highest pessimistic positions since October 2015.
Bank Negara Malaysia earlier this month asked foreign banks to make a written commitment to stop trading the ringgit in the offshore non-deliverable forwards market in a move to protect the currency. The move spurred fears that authorities were preparing to impose capital controls, despite denials by the central bank. The currency fell to a near 14-month low on Thursday.
Singapore's dollar suffered the largest bearish bets since August last year as the government slashed its economic growth and export forecasts for 2016 after confirming the economy contracted in the third quarter. With any rebound in sluggish global demand unlikely in the next few months, the economy is at risk of slipping into recession, keeping expectations of further policy easing alive.
The South Korean won saw the highest pessimistic positions since late May as foreign investors cut holdings in one of the most liquid emerging Asian assets. A deepening political crisis surrounding the country's President Park Geun-hye also hurt investor sentiment.
Prosecutors said on Sunday that they believed Park was an accomplice in a corruption scandal that has rocked her administration in a heavy blow to her fight for political survival. The Philippine peso likely attracted the largest bearish bets since November 2008 as equity outflows pushed the currency to the lowest since the global financial crisis.
Sentiment on India's rupee turned pessimistic with its short positions the highest since late May as foreign investors dumped local stocks and bonds. The rupee on Thursday slid to a new record low, despite repeated central bank interventions. Bearish bets on the Indonesian rupiah rose to the largest since late May on equity and bond outflows. Views on the Taiwan dollar were also worst in almost six months.
The poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht. The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long US dollars. The figures include positions held through non-deliverable forwards (NDFs).