Biden Presidency with split Congress to lead a period of Asian FX strength – TDS

Asia is proving highly resilient to the prospects of a protracted period of uncertainty surrounding the outcome of US elections. If confirmed a Biden presidency, split Congress bodes well for Asia. Trade-orientated FX such as CNY, KRW, SGD and TWD will likely be the main beneficiaries but high yielders such as IDR also likely to strengthen. Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities, briefs.

Key quotes

“The prospects of a prolonged period of uncertainty surrounding the outcome of US elections would not usually bode well for EM assets but Asia is already proving highly resilient. It is increasingly looking likely that we see a Biden administration, with a split Congress but it is not a done deal, with litigation and recounts likely to prolong the outcome.  Tariffs may not be utilized so bluntly by Biden. This would likely bode well for Asia, given the highly trade-dependent nature of most economies in the region and their close connection with China. Additionally, the US would likely play a bigger role in global trade bodies.”

“Given our view that the USD will depreciate in the event of a Biden win, with split Congress (albeit not as much as under a Blue Wave), while US rates are likely to remain suppressed (likely more so now that chances of significant fiscal stimulus have receded), alongside the improvement in Asian external balances, it all points so a period of Asian FX strength.”

“A weaker USD will help lift all boats, but we do expect CNH to continue to be one of the leaders. Similarly, trade-orientated FX such as KRW, SGD and to a lesser extent TWD will likely be key beneficiaries.”