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Emerging markets' currency slump to help soft commodities, with palm oil the top pick: Analyst

Soft commodities including palm oil and rubber that are produced in emerging markets will get a boost as Donald Trump's election win weighs on local currencies, an analyst said Tuesday.

Nirgunan Tiruchelvam, director at Religare Capital Markets, told CNBC's "The Rundown" that Trump's surprise win in the U.S. presidential election had "immense consequences" for the soft commodities complex.

"Soft commodities companies (get) a lot of exposure to the rising prices of soft commodities, many of which are denominated in emerging currencies that are going to depreciate with this unexpected event," he explained.

Soft commodities are traded internationally in dollars on the spot market, so the companies translating these prices into local currencies that are used domestically will see a boost to profits.

Indonesia's rupiah fell by as much as 3 percent against the dollar on Friday to five-month lows, as the greenback strengthened in anticipation that Trump's win signaled higher interest rates in the U.S. Malaysia's ringgit fell to its lowest against the dollar since late 2015, near levels not seen since the Asian Financial Crisis in 1998. Both currencies continued their slide on Monday.

On Tuesday, Malaysia's ringgit extended its losses, with the dollar fetching as many as 4.34 ringgit, but Indonesia's rupiah steadied, with the U.S. dollar buying 13,335 rupiah in Asia trade, in line with Monday's levels.

Palm oil may get a boost from falling emerging markets currencies.
Jefta Images | Barcroft Images | Getty Images

Tiruchelvam's top picks in the complex were palm oil-related company stocks, such as Singapore Exchange-listed Golden Agri-Resources and First Resources.

"Across the board, if you are investing in palm oil, you will do very well," he said.

Indonesia and Malaysia produce some 90 percent of the world's palm oil, which is used in a wide range of products, from biscuits to detergents.

Palm oil futures were already on a tear, with Malaysian crude palm oil futures rallying 15 percent this year alone to around MYR2,880 a metric ton due to the El Nino weather phenomenon hitting yields earlier this year as the dry weather hurt crops.

The tropical commodity is also supported the ongoing La Nina weather phenomenon, as heavy rains hit producing countries, disrupting harvesting and transportation of the crops. Competing commodity soybean is also facing production issues due to La Nina, Tiruchelvam added, which implied prices of soybean oil, a palm oil substitute, would go up, helping palm prices which move in tandem.

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