Asian currencies remain vulnerable

* Asian currencies remain highly risk on, but have become more independent
* KRW is Asia's most risk on currency just ahead of CNY 12m NDFs; though CNY spot is the least risk on
* Spot IDR has become much less risk on, while THB is much more risk on

Asian currencies have been largely influenced by the risk on - risk off (RORO) phenomena, though this influence has waned somewhat. Our analysis shows that some currencies are more vulnerable than others, and that fundamental changes in some have led to recent shifts in correlations with global risk sentiment. Here we quantify Asian currencies' relationships with RORO and look at how they have changed over time. Our analysis supports our recommendation of IDR as a core long, and CNH as a preferred market for renminbi exposure, as they offer better portfolio diversification, in addition to fundamental value.

Asian currencies remain highly risk on assets almost across the board. However, the correlations with the key factor driving RORO behaviour have declined slightly since last year. This is partly a function of lower correlations more generally since 2010. However, more specifically for Asia we think that CNY's growing influence, and its position as the least related to RORO, may have had an impact in lowering Asian correlations with risk on.

Individually, KRW is the most risk on of our currencies, and has retained a high correlation with the RORO over time. CNY spot is the least correlated to risk on - risk off, which is unsurprising given its highly managed nature. The 12m NDFs are highly correlated to RORO, while CNH offers a middling exposure to RORO.

IDR spot has become much less risk on since last year, though the NDFs remain quite correlated with RORO. On the other hand, THB has become much more risk on.