Despite the carnage that has hit emerging market currencies such as the Turkish lira, the Argentina peso and the South African rand, Asian currencies are holding firm. The Thai baht now stands out as a strong performer. The South Korean won, and the Singapore dollar as well as the Taiwanese dollar are holding up relatively firm according to analysts.
Has the emerging market currencies proved to be immune from contagion? It is still too soon to tell, as the upcoming US rate hike would shed light on the possible outcomes for all key emerging market currencies. The Thai baht stands out as it has seen a 1.3 percent gain since mid-August – clearly the best performer here in Asia. This current strength is due to two key factors – the large current account surplus and the strong tourism trade. Thailand is a big exporter of autos, and strong growth makes it likely that the central bank could raise rates soon. This currency looks good.
The South Korean won remains strong as the because of Korea as a large current account and trade surplus as well as a low inflation rate. These same factors explain why Taiwan is in the same situation, both surpluses and low inflation. And the Malaysian ringgit remains strong as Malaysia has very strong exports as it registered a 9.4% growth prior to the previous year.
These currencies are protected by favorable trade and current account factors. For now, they are holding well but again, the trade tensions between the US and China could take some of the strength out of these currencies.