Morgan Stanley warns of Asian currency losses due to Ukraine war

[MUMBAI] Asian currencies are poised for more losses in the short term as investors have consistently underestimated risks stemming from the war in Ukraine, said Morgan Stanley.

"A combination of geopolitical uncertainty and higher oil prices should lead to higher inflation and lower growth in Asia," analysts including Min Dai and Belle Chang wrote in a research report. "The impact on Asian markets will be via FX (foreign exchange), given that FX is the main shock absorber."

Currencies of emerging Asian nations have fallen with stocks in recent weeks as Russia's invasion of its neighbour pushed up commodity prices, threatening the outlook for global growth.

Major oil-importing nation such India and the Philippines have been among the hardest hit, with the rupee tumbling to a record this week. The Wall Street-bank has lowered most of its Asian currency forecasts for the next 3 months, but still expects the US dollar to weaken in the second half once geopolitical tensions ease.

China's yuan has gained over the past month due to haven demand, while the Malaysian ringgit has strengthened due to the surge in commodity prices, while the Indian rupee, South Korean won and peso declined.

Morgan Stanley advises investors to go long on the offshore yuan against the rupee as India's currency is sensitive to oil prices. The bank also recommended buying the Japanese yen against the South Korean won and added a long Malaysian ringgit versus the Thai baht trade to its portfolio. BLOOMBERG