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Singapore, Indian currencies may lead Asian rally
SINGAPORE: Singapore and India offer potential standout returns in an
environment of Asian currency strength on broad dollar weakness and
expectations of a change in Chinese policy, investors and currency
strategists say.
Asian economies are seen attracting money flowing out of US dollar assets
because of their sturdy outlook and a possible revaluation of the Chinese
yuan, also called the renminbi.
“All the Asian currencies have been artificially suppressed for a long
time,” said Ng Swee Kim, fund manager at Nikko Global Asset Management
Singapore Ltd.
“It’s time for a revaluation. Everybody’s looking at a renminbi revaluation
and how that benefits others.”
Stock markets in Hong Kong, Singapore and India have priced in some of that
optimism, having gained between 10 percent and 24 percent since the end of
June. Currencies haven’t risen that far, but many are likely to gain further
as central banks let them strengthen to reflect comparative economic
strengths, investors said.
UBS picked the Singapore dollar, Indian rupee and Taiwan dollar as the most
likely to outperform other regional currencies because their respective
central banks are more confident about letting the currencies strengthen to
tackle inflation.
“There are signs of demand-led inflation in these Asian countries,” said
Bhanu Baweja, a currency strategist at UBS in Singapore.
The Monetary Authority of Singapore, which uses the currency to steer
monetary policy, has a stance of allowing a gradual and modest appreciation
of the trade-weighted currency to control inflationary pressures. The
currency has gained 4.5 percent against the dollar since the end of June.
Hong Kong and Malaysia have pegged currencies, but investors have speculated
that a change in China’s yuan policy would see the pegs shift and are
positioning themselves for such a move in derivative markets.
Central banks key: However, the South Korean won may lag its peers in coming
months since it has already risen 7.6 percent this year to outperform major
Asian currencies, analysts said.
The currency will also be weighed down by concerns over weak domestic demand
and slowing export growth, said David Simmonds, a Singapore-based emerging
markets strategist at Royal Bank of Scotland.
The Philippine peso, which equaled its record low in October, is expected to
be undermined by worries about the country’s chronic fiscal deficit which
has put its credit ratings under pressure.
Asian central banks hold the key to further appreciation in their
currencies, strategists said.
Led by Japan and China, the central banks intervened heavily in recent years
as governments sought to curb currency strength to protect exports, the key
growth engine in the region. Asian central banks hold almost $2.3 trillion
in reserve assets.
However, since the start of the dollar’s broad decline against major
currencies in October, Asian authorities have allowed some appreciation of
their currencies in line with their rivals.
“The market is testing the central banks,” said Ben Rudd, investment
strategist at ABN Amro in Hong Kong.
Asian resistance to currency strength is not expected to be as strong as
2002 and 2003 because central banks are keen to use currency gains to douse
inflation, said Simmonds.
After President George W. Bush was elected for a second term, the dollar’s
losses accelerated as the market fretted about the country’s large and
growing US current account deficit.
This week, the dollar hit a record low against the euro, a near five-year
low against the Singapore dollar, and its weakest rate against the won since
the 1997 Asian financial crisis.
The Indian rupee has appreciated after the US election, bolstered by growing
optimism about company earnings and a central bank rate rise in late
October. The rupee has gained almost 3 percent against the dollar in the
past couple of months.
Some fund managers said they have put more money into India and Singapore
stocks relative to the weightings of these markets in regional benchmark
indexes, even without the gains in their currencies, because several
companies in these countries are likely to report rising profits which are
not reflected in their current stock prices.
“We’re overweight in India and some Southeast Asian countries like Singapore
and Indonesia,” said Adrian Lim, who helps manage Aberdeen Asset Management
Asia’s $20 billion in Asia.
“India is pretty attractive, offering relative good valuation on a
three-to-five years’ timeframe,” said Lim. —Reuters
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