Easing currency risks support Asian equities

Added 21st April 2016

A weaker dollar and a low chance of an RMB devaluation support Asian currency stability, which has a strong equity market impact, said Falcon Private Bank’s CIO David Pinkerton.

Easing currency risks support Asian equities

“One of the concerns in the market globally is the fear that the dollar has been too strong. When the dollar weakens, this is generally supportive for Asian equity markets in general," Pinkerton told FSA

“The dollar has been appreciating because the US is the only country in the world that is positioned to hike interest rates, but what’s happening now is that a rate hike could threaten the US economic acceleration. So they basically put the brakes on and this is what has driven the decline in the pace of dollar appreciation,” he said.

The devaluation of the RMB is another risk to Asian currencies, but Pinkerton believes a dramatic depreciation is unlikely.

While there are natural pressures on the currency to depreciate, China's central bank has made it clear that its primary objective is to maintain currency stability, he said.

“It would be the easiest thing for China to pursue a more dramatic currency depreciation and that would then have a contagion risk to other trading partners in the region. It is against China’s long-term interest to basically introduce more volatility to its currency because it [is now] part of the world’s reserve currency basket,” he said.

"We believe the tide has turned and is now in favour of the emerging markets"

Currency as market catalyst

Pinkerton has become more bullish on Asian equity markets, in particular Malaysia, Indonesia and Vietnam.

“We were underweight emerging markets over the past five years and in favour of the developed markets, principally in the US and Europe. We believe the tide has turned and [sentiment] is now in favour of the emerging markets.

"[The EMs] that come out and perform the best will be the ones that have had most significant currency depreciation relative to the US dollar or relative to their major trading partners."

He believes currency movments have a strong impact on markets. He cited a study by Falcon that showed the principal catalyst for equity upside "is when international investors believe the threat of further currency depreciation is removed”.

For China, he has a more cautious tone when comparing it to other Asian countries. There are concerns in two major equity sectors, he said. One is the earnings concerns in the financial sector, as the nonperforming loan issue has not been fully disclosed. The other caution is the excess capacity in the manufacturing sector.

“We look at equities in comparison to other markets and in comparison to themselves in time. Chinese equities are cheap in comparison to other markets and they are slightly cheap in comparison to [their history]. We have seen enormous volatility there and it is not necessarily the right time to go long Chinese equities,” he said.

He said the house maintains its base case of 0% returns for China equities in 2016. 

Kames Income Hub


Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

Matthews Asia Funds Asia Dividend
Matthews Asia Funds Asia Dividend...

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Susanna Tai

Senior Reporter

Susanna is from Hong Kong and she previously worked as a reporter for Asian financial institutions at S&P Global Market Intelligence in Hong Kong. Before that she was at Dow Jones, where she reported on the stock markets for five years.



Investment Strategy




PA Channel Island 2016
PA Channel Island 2016

8th November 2016
The Royal Yacht, Jersey


17th November 2016
The Andaz

PA Emerging Markets 2016
PA Emerging Markets 2016

1st December 2016
The Mayfair, London

Sponsored Content

Investment Strategy