Asia FX: Risk-off bias and safe havens – MUFG

MUFG’s Michael Wan notes stabilising global risk sentiment but highlights growing concerns over sustainability of the AI trade and its spillover to FX markets. He expects 2027 to be more challenging for risk assets, with Asia’s export growth rolling off. The bank currently prefers Asia Tech FX such as KRW, TWD and CNY, while favouring long positions in Dollar, JPY and CNH versus higher beta currencies.

Risk assets face tougher 2027 backdrop

"Risk sentiment in markets stabilised overnight, although under the hood there remains concerns around the sustainability of the AI trade, and with that the spillover to FX markets as well."

"From a macro perspective the best lead indicators we track are starting to show signs that Asia’s export growth is rolling off into 2027 but to be clear implied growth rates remain healthy into 2027 just not as high as what we’ve seen."

"Our best guess looking ahead is that 2027 could prove somewhat more challenging for risk assets, and in particular because we could also see the Democrats flip both the House and the Senate with the possibility of greater AI regulation and also a more divided and partisan push on fiscal policies."

"Meanwhile for Asia our FX relative preference remains for now for outperformance in the Asia Tech FX such as KRW and TWD and also CNY, with underperformance in the likes of INR and IDR due to domestic reasons as well."

"Overall, we could perhaps see greater instances of risk-off, with the likes of safe haven currencies such as JPY and CHF outperforming and so overall going long the Dollar, JPY, or CNH against higher beta currencies may make sense moving forward."