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Stagflation Risks Surging in Asia, CNY Weakness Weighing on Asia FX

EMERGING MARKETS

Executive summary:

  • We saw that inflation has started to surprise positively also in Asia/ SE Asia after remaining ‘quite low’ in 2021, which could push policymakers to adopt a more hawkish stance to avoid political uncertainty and social unrests.
  • With inflation expected to remain elevated in EM economies and the economic activity expected to decelerate, stagflation concerns have been surging. Historically, stagflation has been the worst environment for equities.
  • CNY weakness also leaves EM FX (especially Asia FX) vulnerable in the near term.


Link to full publication:

EM Asia Pressure - Final.pdf


With inflation expected to remain elevated in EM economies and the economic activity expected to decelerate (some analysts argue that recession risks have increased considerably in the past two months), stagflation concerns have been surging. Historically, stagflation has been the worst environment for equities.


The Ukraine war shock combined with the supply chain disruptions caused by the severe lockdown policies imposed by Chinese officials are likely to continue to support inflation in the SE Asia region in the medium term.

Source: Bloomberg/MNI.

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