Goldman: To Underperform CNH & KRW In The Current USD/Asia Bull-Run

Goldman Sachs note that “with North Asia FX under pressure, we continue to think TWD shorts make sense and our longstanding trade recommendation to be long SGD vs short TWD, opened in late October 2020, has by now accumulated roughly 21% of total return.”

• “While we are bearish on all NEA currencies, and while the tightly-managed TWD could exhibit some relative stability during a sharp move higher in USD/Asia, we think the TWD will underperform the CNH and KRW over the medium run.”
• “USD/CNY is already flirting with the psychological 7.0, although we do not think this level is impermeable, particularly if it coincides with USD strength, and USD/KRW is trading near post GFC-highs.”
• “USD/TWD is still in the middle of its 27-33 range over the past decade. On capital flows, Taiwan has seen USD15bn of equity outflows each in 2020 and 2021, and USD38bn year-to-date. Meanwhile, our equity strategists’ cross-strait risk barometer index has reached an all-time high amidst elevated geopolitical tension.”
• “On the KRW, we think there is scope for USD/KRW to grind higher, but the recent sell-off has already been very sharp and our Korean economists expect the KRW to have reduced cyclicality, given the transformation of their industrial sector.”
• “We think that persistent equity outflows and ongoing geo-political risk should sustain TWD underperformance vs CNH and KRW ahead”