KUALA LUMPUR: Emerging currencies including ringgit are likely to be adversely affected from the worsening trade war between China and the United States as investors at large begin to shun risky assets.
With no signs of the trade war cooling off, analysts said yuan’s expected free fall to new lows in the days ahead would lead other emerging currencies such as the ringgit, Korea’s won, India’s rupee and Indonesia’s rupiah to follow suit.
Turkey’s lira led the fall yesterday (Monday) and dived almost 10 per cent year to date. It was made worse by the recent massive sell-off, making lira the world's worst currency after Argentine peso.
The wave of selling pressure has also hit other major emerging currencies, majority of which ended in red yesterday.
At 6pm today (Monday), the ringgit settled at 4.2010/2050 against the US dollar from 4.1900/1930 on Friday.
Last week, the ringgit eased 0.3 per cent against the greenback as it settled at 4.1912.
FXTM global head of currency strategy and market research Jameel Ahmad said it had become even more evidently clear in recent days that relations between China and the US were going to get far worse before any potential reconciliation. This would likely mean the yuan was expected to fall to new milestone lows over the days ahead.
Jameel said the yuan falling to further milestone lows will drop emerging markets across Asia lower with it. Consequentially, the likes of the ringgit, won, rupee and rupiah should also face the brunt of investor skepticism towards taking on risk in their portfolios right now.
“The Japanese yen will be the victor from another trade escalation as an asset of safety for investors, while emerging markets, their currencies and risk currencies like the Australian dollar and New Zealand dollar will also find themselves as victims from another trade war escalation,” he said.
Jameel also expects that thinktanks to be preparing another downgrade to global economic growth expectations any time now.
More developed Asian economies like Singapore and Hong Kong need to be aware of the headwinds everyone is exposed to as the US-China trade war fears hit new levels, he added.
Economists had earlier said slower global growth would significantly impact Malaysia’s total trade in the future.
However, they said Malaysia’s economic growth would still be resilient given the strong domestic consumption growth.
AmBank Group chief economist Dr Anthony Dass said with greater appetite for safe haven assets, more downwards pressure was expected on ringgit against the dollar.
“In our view, the support for ringgit is poised to be around RM4.1828 and RM4.1957 while the resistance is envisaged to be around RM4.2106 and RM4.2204,” he said.
Driven by the ongoing trade tension between the US and China, Dass said it is expected to trigger adverse impact on global markets, namely equities.
“We foresee demand for safe haven assets to remain strong. In our view, the volatility in the global markets could last for a few days, especially if the yuan fixing continues to weaken and will see other currencies weaken against the dollar,” he said.
Malaysia’s key benchmark index, FTSE Bursa Malaysia fell on Monday, tracking regional peers. It dropped 0.55 per cent to 1,600.53 points from Friday’s close.
Last week, MIDF Research said foreign investors continued reducing their exposure in Asian region at a high level above US$1 billion for the fourth week running.
Although foreign investors had sold stocks listed on Bursa for sixth straight week, the firm said there had been a gradual decline in foreign net selling activity for the past three weeks.
MIDF Research said based on data from Bursa, foreign investors sold RM372.8 million net of local equities last week.