Asian Currencies Suffered Their Worst Quarter Since The Global Financial Crisis

Petronas Towers during lightning storm. Kuala Lumpur, Malaysia. Photo courtesy of Flickr/Andy Mitchell.

Asian currencies have just suffered their worst quarterly performance since the height of the global financial crisis in 2008.

Amid market turmoil, Asian currencies were slammed in the third quarter, driven by a slowdown in economic growth from China — including devaluations of its yuan, falling oil prices and commodity prices, and concerns as the U.S. Federal Reserve moved closer to a hike in its near-zero interest rates that have supported the demand for riskier assets in EMs.

According to Bloomberg, its JPMorgan Asia Dollar Index, which tracks Asia’s 10 most-active currencies excluding Japan, fell 4 percent in the third quarter, its worst performance since 2008.

Malaysia’s ringgit was hit the hardest as it plunged 14 percent amid the previously mentioned factors, compounded by a corruption probe of its Prime Minister Najib Razak.

China’s yuan declined 2.5 percent — the most since the first quarter of 2014 — as its economic slowdown deepens and following the devaluations of its currency.

Indonesia’s rupiah fell 9 percent versus the dollar in the third quarter of this year, Thailand’s baht fell 6.9 percent — its worst quarterly performance since 2000, Taiwan’s dollar fell 6.2 percent — its biggest loss since 1997, South Korea’s won retreated 5.9 percent, Singapore’s dollar fell 5.3 percent, the Philippine peso fell 3.5 percent, India’s rupee dropped 3.1 percent, and Vietnam’s dong retreated 2.9 percent — its worst performance since 2011 — following its third devaluation this year.

Chart courtesy of Bloomberg

Fed Chair Janet Yellen said last Thursday that the central bank remains on track for a likely hike in U.S. interest rates this year.

“It’s hard to see how any Asian currency will post sustained, substantial gains in the fourth quarter, with losses versus the U.S. dollar likely to be the norm,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp, told Bloomberg.

“We expect volatility to remain elevated as Asian policy makers struggle with regional deceleration in growth, and yet more weeks and months of debate over the Fed policy outlook,” Callow said.

According to Bloomberg, around $141.66 billion of capital fled China in August following the yuan’s surprise devaluation which slammed global markets, a new record which eclipsed the previous record of $124.62 billion in July. 

Last week, the Asian Development Bank (ADB) cut China’s 2015 growth forecast from 7.2 percent to 6.8 percent in addition to lowering its 2015 growth forecast for Asia’s emerging economies to 5.8 percent from 6.3 percent.

In August we questioned if we are on the cusp of the Asian Financial Crisis Redux?  One thing is for sure, as turmoil deepens, a growing number of investors are continuing to exit emerging markets, at a rapid clip, as EMs have seen their largest outflows in assets since the final three months of 2008.