Asia FX: Safe havens in focus amid risk-off bias – MUFG

2027 is expected to be tougher for risk assets, says MUFG’s Michael Wan. Asia’s export growth is slowing, while concerns are mounting over the sustainability of the AI trade and its spillover into FX markets, despite stabilising global risk sentiment. For now, the bank favours Asia Tech FX, including KRW, TWD and CNY. It also prefers long positions in the Dollar, JPY and CNH against higher-beta currencies.

2027 Outlook Toughens for Risk Assets

"Risk sentiment in markets stabilised overnight, although under the hood there remains concerns around the sustainability of the AI trade, and with that the spillover to FX markets as well."

"From a macro perspective the best lead indicators we track are starting to show signs that Asia’s export growth is rolling off into 2027 but to be clear implied growth rates remain healthy into 2027 just not as high as what we’ve seen."

"Our best guess looking ahead is that 2027 could prove somewhat more challenging for risk assets, and in particular because we could also see the Democrats flip both the House and the Senate with the possibility of greater AI regulation and also a more divided and partisan push on fiscal policies."

"Meanwhile for Asia our FX relative preference remains for now for outperformance in the Asia Tech FX such as KRW and TWD and also CNY, with underperformance in the likes of INR and IDR due to domestic reasons as well."

"Overall, we could perhaps see greater instances of risk-off, with the likes of safe haven currencies such as JPY and CHF outperforming and so overall going long the Dollar, JPY, or CNH against higher beta currencies may make sense moving forward."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)