Coronavirus: Trading the Asian currencies - TD Securities

Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities, offers a strategy for trading the Asian currencies, in the face of the new China coronavirus outbreak.

Key Quotes:

“The new coronavirus (2019-nCoV) is spreading quickly, leading to renewed fears of a repeat of SARS or worse.

SARS peaked around 3-4 months after the initial outbreak was reported, but major travel over the Chinese New Year holidays could exacerbate the spread this time.

We assess the economic and market impact of other viruses (SARS, Swine influenza, MERS, and Bird flu) to gauge the impact on markets of this virus.

We find that the market and economic impact is likely to be short-lived, with the fear factor worse than reality.

How to trade it: The defensive strategy is to be long USDKRW during the first two weeks of the outbreak, short CNH against EUR and JPY as the outbreak intensifies, and then short USDIDR and USDKRW as the fear factor fades.”