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Italian political risks and US/China trade tensions have weighed on EM/Asia FX and as there are notable backstops against a European financial crisis, while US/China trade tensions could again prove temporary (assuming near-term US-China talks prove to be fruitful).

Key Quotes

“At this juncture we have decided to marginally adjust our Asia FX portfolio: we maintain our long USD vs. HKD and PHP position (vs. long THB), reduce short SGD leg vs. CNH cross, implement a tactical long INR option position.”

“That said, we remain wary of ‘date’ risks around US-China trade protectionism (15 and 30 June) and maintain our view that NE Asia FX, SGD and MYR will be the most affected if protectionism intensifies.”

“We also remain watchful of Italian political risks, especially if they lead to stress in the banking sector and trigger some deleveraging. For Asia, we note relatively higher exposures in SGD and HKD to European bank lending.”

“Our previous analysis on positioning risk remains intact, and we maintain our view that an intensification of negative global developments raises foreign portfolio outflow risks in IDR, MYR, ZAR, TRY, and MXN (levels of foreign ownership and real money positioning). Option positioning risks (selling of high strike USD calls) are evident in RUB, MXN, and ZAR.”