Rupiah, Won to Lead Asia Currency Gains, Top Forecaster Says
July 12, 2011, 2:34 AM EDTBy Lilian Karunungan and Yumi Teso
(Updates prices from fifth paragraph.)
July 12 (Bloomberg) -- Indonesia’s rupiah and South Korea’s won will lead Asian currency gains for the rest of 2011 as central banks use appreciation to counter inflation, says Credit Suisse Group AG, the region’s most-accurate forecaster.
The rupiah will climb 4.5 percent and the won 4 percent in the six months through Dec. 31, after the two currencies were also the best performers in the first half, according to Credit Suisse, which Bloomberg data show had the best projections for the six quarters through June 2011. The Thai baht will climb 4 percent following a peaceful election on July 3, the bank predicted. Barclays Plc, which ranked second, expects the Taiwan dollar to perform best with a 4.7 percent advance.
Asian currencies strengthened in each of the last four quarters as the world’s fastest economic growth and rising interest rates attracted funds. Demand is also being supported by expectations that the Federal Reserve will keep its benchmark rate near zero and Japanese factory output will recover from the March 11 earthquake, said Goh Puay Yeong, a foreign-exchange strategist in Singapore at Credit Suisse, Switzerland’s second- largest bank.
“The upturn in global growth and the U.S. remaining on hold on interest rates should encourage inflows,” said Goh. “Indonesia to a certain extent, and South Korea are looking at currency appreciation as part of their policy mix to curb inflation.”
The won strengthened 5.5 percent and the rupiah 4.7 percent in the first half, while the baht declined 2.5 percent, according to data compiled by Bloomberg. They’ve since advanced 0.1 percent to 1,067, 0.3 percent to 8,550 and 1.1 percent to 30.42, as of 1:21 p.m. in Singapore.
Indonesia’s Tolerance
The rupiah reached 8,499 per dollar on June 8, its strongest level since March 2004. Global funds pumped $2.5 billion into Indonesian shares and boosted their holdings of the nation’s bonds by $5.1 billion this year. Southeast Asia’s largest economy expanded 6.5 percent from a year earlier in the first quarter, outpacing U.S. growth of 2.3 percent.
The central bank lifted its benchmark rate in February to 6.75 percent after inflation reached a two-year high of 7.02 percent in January. Consumer-prices gains have since moderated, with June data showing a 5.5 percent rate.
Bank Indonesia said last month the “continuing trend of rupiah appreciation is in line” with efforts to stem living costs, including that of imported goods.
HSBC Holdings Plc, which had the most accurate rupiah projections in the last six quarters, predicts the currency will appreciate 3.3 percent to 8,300 in the second half of 2011.
Investment Grade
Credit Suisse expects Indonesia to win an investment grade rating, luring more foreign capital into its bonds, Goh said. Standard & Poor’s, Fitch Ratings and Moody’s Investors Service all rank Indonesia one level below investment grade, a threshold that some funds must stay above in selecting assets.
Endre Pedersen, who helps oversee $28 billion of Asian bonds as the managing director of fixed income at Manulife Asset Management in Hong Kong, says the rupiah is his top pick among regional currencies.
“Asian currencies will continue to perform well relative to the G3,” he said, referring to the dollar, euro and yen. Pedersen manages the Manulife Global Fund-Asian Total Return Fund, which returned 4.2 percent this year, beating 86 percent of its peers, according to data compiled by Bloomberg.
Mainland Travelers
Westpac Banking Corp., which was the third most-accurate forecaster of Asian currency moves, said there’s limited room for appreciation against the dollar with the ending of the so- called quantitative easing by the Federal Reserve. The bank’s best pick is India’s rupee, which will be supported as relatively high yields and economic growth draw funds from abroad, according to Huw McKay, a senior economist at the bank. It may advance 1.6 percent to 44 by year-end, he said.
Developing economies in Asia will expand 8.4 percent in 2011, outpacing growth of 2.5 percent in the U.S. and 2.0 percent in countries using the euro, according to International Monetary Fund estimates released in June. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, hit a 14-year high this month.
Thailand’s baht weakened 2.5 percent in the January-June period, its worst performance since 2008, as overseas investors cut holdings of the nation’s equities on concern a July 3 election would spark political instability. The currency advanced 1.2 percent since the election, in which the Pheu Thai party, headed by Yingluck Shinawatra, won a majority without triggering violence.
Thai Election
“While political uncertainty cannot be ruled out, the strong mandate that the Pheu Thai party got at the polls should see a stable government for the next six months,” Goh said, predicting the baht will reach 29.56 by year-end. “Foreign direct investment flows should improve.”
Taiwan’s dollar strengthened 12 percent in the past year and Barclays predicts improving ties with China will fuel further gains. An agreement was reached last month allowing individuals from the mainland to visit the island.
“The liberalization of tourism controls, allowing mainlanders to come in independently, is going to be a big structural boost,” said Wai Ho Leong, a senior regional economist at Barclays in Singapore. “It will bring in substantial amounts of foreign exchange.”
The Taiwan dollar will reach NT$27.50 versus the greenback in the next six months, the strongest level since 1997, Barclays predicts. The currency has advanced 0.3 percent to NT$28.919 since June 28, when visitors from the mainland were first allowed to come without being part of group tours.
Malaysian Oils
The ringgit may climb 4.1 percent after increasing 1.5 percent in the first six months as Malaysia divests of state assets to revamp its finances and lure investments, Barclays said. The currency reached a 13-year high of 2.9598 per dollar on May 2.
Kokusai Asset Management Co. said it favors the ringgit on gains in prices for palm and crude oils. Kokusai’s Asia Pacific Sovereign Open fund returned 5.4 percent this year, beating the average return of 2.3 percent for its peers, according to data compiled by Bloomberg. Palm oil climbed 25 percent in the past year and crude advanced 26 percent.
“The ringgit will see support from rising export revenue as Malaysia exports commodities such as palm oil and crude, and commodities prices will likely remain firm,” said Tatsuya Higuchi, senior portfolio manager of the fixed-income fund management department at Kokusai, which has about $57 billion of assets. The currency “may see relative outperformance,” he said.
‘Pretty Positive’
The baht and the Hong Kong dollar, which is pegged, are the only Asian currencies to have lost ground to the greenback so far this year, while in 2010 the Hong Kong dollar was the sole loser. Stock markets in India, South Korea and Taiwan have alone attracted some $4 billion from abroad this year, exchange data show.
“We are pretty positive on the whole basket of Asian currencies relative to the U.S. and Europe,” said Hayden Briscoe, a Melbourne-based director of Asia Pacific fixed income for AllianceBernstein LP, which oversees $216 billion of fixed income assets worldwide as of the end of May. “You’ve got an ongoing story of growth. We see continued appreciation likely.”
Forecasters were ranked according to estimates for the six quarters beginning with the first three months of 2010. Long- term accuracy was judged by a forecast for the 12 months to end- June 2011.
Only firms with at least four forecasts for a particular currency pair were ranked, and only those that qualified in at least six out of 10 currency pairs were included in the ranking of best overall predictors. In all, 31 firms submitted enough forecasts to be ranked in at least one currency.
--With assistance from Kyoungwha Kim in Singapore, and Laurie Meisler and Mary Lowengard in New York. Editors: James Regan, Sandy Hendry
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
