Morgan Stanley Turns Bearish on Emerging Market Currencies on China Risks

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Morgan Stanley is returning to a bearish view on emerging-market currencies, citing concerns over China’s growth risks that not only weigh on the yuan but also further pressure a weak global economy.

The shift from a neutral stance partly resulted from a view change on the offshore yuan, where the Wall Street giant has added a short position given expectations for growth risks to remain a focus, strategists led by James Lord wrote in a note. “CNH weakness and China macro weakness should spill over to the rest of EM.”

Asian currencies, particularly the Singapore dollar, baht, won and ringgit look most exposed to a China growth slowdown, while EM peers including the rupee and Turkish lira may be better positioned, Morgan Stanley’s strategists wrote. “We are not expecting a significant rebound in sentiment towards China’s outlook in the short term,” the strategists wrote, citing low private-sector confidence, deleveraging in the property sector and longer-term issues from debt to demographics.

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