Asia: Falling FX Reserves - TDS

Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities, notes that Asian FX reserves registered the largest monthly fall in October, but was mostly due to valuation effects.

Key Quotes

“China accounted for most of the drop in FX reserves. The pace of outflows from China and reserves decline has accelerated in the last couple of months.”

“In 2018 (to Oct) Asian FX reserves have dropped in all but two months. In valuation-adjusted terms reserves have actually increased, revealing how USD strength has had a major impact.”

“There has been a wide disparity in Asian FX reserves changes, with current account deficit countries (and China) registering the biggest reserves declines.”

“Reserves adequacy measures have worsened, but not dramatically, as Asian central banks have learnt their lessons from past crises.”

“Lower FX reserves have gone hand in hand with a fall in purchases of US Treasuries.”

“We expect Asian FX reserves declines to slow or even reverse in some cases, with the likes of IDR, INR and PHP, likely to see an improved picture in contrast to CNY and trade orientated currencies, including TWD, KRW and SGD.”