It’s Going to Take More Than the ” Surgical Face Mask Hedge”

Perusing the ASEAN market increasingly tilted landscape, it’s going to take more the “surgical face mask” hedge to reverse the trend, which is trading at 10 X premium in my neck of the woods (Bangkok), incidentally.

Fears are increasing again and should continue to weigh on global markets with Asian equities suffering harder knockdowns. I am skeptical investors will be as quick to jump into trades fading these moves until the transitory period sets in.

But the market is so finely tuned these days, and in a matter of days, its self-correcting mechanism takes hold without the need for central bank policy. One of the more undervalued market self-correcting mechanisms is how quickly financial conditions loosen. From last Friday’s tops to peak fear yesterday, the bond markets shaved off a whopping 15 basis points on ten-year US yields, which offset the stronger dollar and decline in the equity market and accomplishes much of the central bank heavy lifting. But I’m not sure that itself will be enough to paper over all the cracks.

To be sure, the weakness in underlying ASEAN bourses and soon to be global is transcending the usual suspects, luxury, travel, and tourism.
Investors could be forgiven for thinking that markets have it in for them at the moment. Just as the market puts phase one trade deal to bed, then we get hit with geopolitical concerns around a potential US-Iran war, and just as those fears died down, they were replaced by WARS of another kind (Wuhan Acute Respiratory Syndrome)

The market was able to shrug things off quickly in the past, but the other risk here is that all the bandwidth is being taken up by the virus, and is taking focus away from other issues.

Frankly, I’m surprised there was very little attention paid to the progress Bernie Sanders had made towards the Democratic nomination.

FX Foreign outflows from SETi continued.  YTD outflows from Thailand approached $400mil, the highest outflows among Asian markets this year.  THB broke 31 as of this morning, and USDTHB continued to grind higher.

I’ve been a bit narrowly focused on THB and CNH for obvious reasons. Still, I think the ASEAN basket, and especially the Malaysia Ringgit will remain extremely vulnerable over the next few sessions on potential outflows as what supported the Ringgit entering the Year of the Rat is gradually evaporating. As discussions on the expected market fallout from the Novel coronavirus continue to send waves of negative across the bow and the market reaction is shifting from a knee-jerk USD adjustment to a full hedge buy-in as Asia’ key bellwether proxy nudges towards 6.99 (USDCNH). The Ringgit remain prone beyond the CNH correlation basis.