Morgan Stanley’s Troubled 10

MORGANForget the ?Fragile Five.? These days, strategists at Morgan Stanley are worried about what could be called the ?Troubled Ten.?

That?s how many nations they say are particularly at risk since China devalued the yuan. While the analysts haven?t used the term themselves, it?s as good a description as any for the currencies — from the Brazilian real to Peru?s sol and South Korea?s won — which have trading ties making them susceptible to a slowdown in the world?s second-biggest economy.

?It?s all about vulnerability,? said Hans Redeker, the London-based global head of foreign-exchange strategy at Morgan Stanley. ?Major victims of the policy change this time are currencies of countries with high export exposure and export competitiveness with China.?

Morgan Stanley was right about the Fragile Five. Those currencies include four of the developing world?s eight worst performers since the phrase was coined in 2013. The real, together with Turkey?s lira, South Africa?s rand, the Indian rupee and Indonesian rupiah, have suffered as rising global interest rates make it more difficult for the countries to finance their current-account deficits.

For Redeker, the biggest challenge now is a lack of global growth. While central banks in Japan, Europe and the U.S. have rolled out record stimulus, the world?s economy will expand at the slowest pace since 2009 this year, according to International Monetary Fund forecasts.

China Currencies Club

That ?lukewarm? recovery means China won?t be able to rely on exports to drive expansion, said the strategist, whose firm was the second-highest ranked forecaster of the dollar versus the yuan, according to data compiled by Bloomberg for the four quarters ended June 30. In turn, the slower growth will also put China?s trading partners in the crosshairs.

There?s some overlap between the Fragile Five and the new at-risk list, with the rand and real to be found in both. Also vulnerable to China?s slowdown are the Thai baht, the Singapore and Taiwan dollars, the Chilean and Colombian pesos, Russia?s ruble and the won and the sol, according to Redeker.

China is the top export destination for most of the countries on the troubled 10 list, data compiled by Bloomberg show. The nation accounted for 37 percent of South Africa?s exports and 30 percent of South Korea?s in 2014.

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