Yuan set to stay stable as China's economy in good shape

The weakness in some emerging markets, which is poses a biggest challenge to the world economy, may see their currencies worsen, according to analysts.

The yuan is set to stay relatively stable as China's economy is in good shape although the currencies of some emerging economies may worsen due to their economic and social weakness, analysts said.

“The biggest challenge for the world economy now is the weakness in the emerging markets,” said Jameel Ahmad, global head of currency strategy and market research at FXTM. “From Turkey, Brazil to Indonesia and India, some countries are suffering from huge current account deficits or in political disorder, which caused a sharp plunge in the value of their currencies.”

He said it was hard to predict how deep the current crisis in emerging markets will become or how soon the world economy may see positive signs, but China and some other markets, including Singapore and Malaysia, are less likely to see a big decline due to their sound fiscal and financial position.

Kelvin Wong, chief technical strategist of Asia at Gain Capital, also said the world economy is in the middle of great uncertainty as reflected in slowing industrial growth and diminishing orders in trade.

“Investors should closely follow the situation in the emerging markets,” Wong said. “But for China, the situation is still predictable due to its stable economic fundamentals.”

Andy Seaman, partner and chief investment officer at Stratton Street, said one key reason currencies in emerging markets have plunged is their cumulative current account position, or net foreign assets.

Seaman sees the currencies of Turkey, Hungary and New Zealand as likely to perform badly while those of Singapore, Switzerland, Japan and China are seen as good performers.

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