Adjusted Resource Gaps
The mighty dollar. Since its low on 15 February the DXY dollar index is up 5.9%. The broader JP Morgan nominal effective exchange rate (NEER) is up 4.9% from its low on 1 February. Markets are fretting about dollar strength and what it will do to emerging market finances, commodity import costs and fiscal balances.But wait. The DXY is up from the start of this year but only by 1.7%, the NEER is slightly stronger having risen by 1.9%. Were markets as skittish as this at the beginning of January? We don’t think so.
Then how about looking back all of twelve months? Since 7 June 2017 the DXY is down 2.9% while the NEER is off 1%. Markets were roaring ahead a year ago when the dollar was stronger than it is now. Of course, that was during The Donald’s market honeymoon and before he started firing off in all directions from North Korea to Iran to China. Maybe it is not the dollar that is the cause of the problems after all.
In the attached Asianomics Special Report, Adjusted Resource Gaps, we look at how Asian currencies – using the trade-weighted nominal effective exchange rate – look today against their average over the past two years. Five are beating their two-year average and five are below it (Singapore is sitting bang on it). And we then turn to our adjusted resource gap measure of external balance to see where strength and weakness are justified.
We would be happily long the Singapore dollar, New Taiwan dollar, Thai baht, Malaysian ringgit and Korean won.
Best for now
Jim
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.