(Adds MAS review in the 11th paragraph.)
Oct. 14 (Bloomberg) -- Asian currencies will extend their biggest slide in three years through December before rebounding in early 2012 as export demand picks up, said Standard Chartered Plc, the most-accurate forecaster for the region.
South Korea’s won, the worst performer last quarter, will drop 1.8 percent per dollar during the current period and climb 7.1 percent in the first three months of next year, according to the London-based bank. Oversea-Chinese Banking Corp Ltd., the second-best foreign-exchange forecaster as measured by Bloomberg News in the six quarters through September, predicts the won will slip 1 percent by year-end and rise 2.6 percent in the first quarter.
Europe’s failure to resolve its debt crisis and a faltering U.S. recovery have slowed export growth and trimmed economic expansions from China to Singapore. The global economy isn’t likely to see another recession as it did in 2008 as Europe will “muddle through” and U.S. policy makers will stave off a downturn, said Thomas Harr, head of Asian currency strategy at Standard Chartered in Singapore.
“Asia will weaken more in the next one to two months because we do think we will get more bad news in terms of economic data globally,” he said. “The important thing is we don’t expect a global recession. Next year, money will come back to Asia. Fundamentals are strong here.”
Standard Chartered ranked as the top forecaster with an average margin of error of 2.66 percent for its Asian currency forecasts.
The Bloomberg-JPMorgan Asia Dollar Index slid 3.5 percent last quarter, the biggest drop since the same period in 2008. The won lost 9.4 percent last quarter and the Taiwan dollar 5.6 percent, while the rupiah weakened 5.3 percent, according to data compiled by Bloomberg. South Korea’s currency since has gained 1.5 percent to 1,161.13, Taiwan’s 0.6 percent to NT$30.339 and Indonesia’s 1.9 percent to 8,892 as of 10:15 a.m. in Singapore.
Taiwan and South Korea had the biggest net outflows last month among stock markets in Asia excluding Japan as foreigners withdrew $2.6 billion and $1.3 billion, respectively, according to exchange data. Overseas funds cut their Indonesian bond holdings by an unprecedented 29 trillion rupiah ($3.3 billion) last month, figures from the finance ministry’s website show.
China’s overseas sales climbed 17.1 percent last month, the least since February, while Taiwan’s export growth held below 10 percent for a second month in September, official data show. South Korea’s shipments increased 19.6 percent following a 25.9 percent gain in August.
“The three ones that will really do quite well from the beginning of next year will be the Korean won, Taiwan dollar and the Indonesian rupiah,” Harr said.
The won is “very cheap” and exports should benefit when global demand picks up, he said. The JPMorgan Nominal Effective Exchange Rate, a trade-weighted index for the currency, reached its lowest level since July 2009 on Oct. 4. The won dropped 14 percent against the Japanese yen in the last quarter and 11 percent versus the Chinese yuan, helping South Korea’s Samsung Electronics Co. and LG Electronics Inc. compete against Japan’s Sony Corp. and Panasonic Corp. as well as China’s Haier Group Corp.
Singapore will reduce the pace of currency gains it is seeking rather than halting appreciation, the central bank said today in its semi-annual exchange-rate review, signaling confidence in its economy despite the deteriorating global outlook. The island-state’s currency advanced 0.3 percent to S$1.2740 versus the greenback.
The Taiwan dollar will weaken 1.6 percent this quarter, according to Standard Chartered. The currency will then rally 5.8 percent in the first three months of 2012 as global funds return to its equities market and China, the island’s biggest export market, lets its currency appreciate, Harr said.
Asia’s developing economies will expand 8.2 percent in 2011 and 8 percent in 2012, according to estimates released last month by the International Monetary Fund. That compares with projections for advanced economies of 1.6 percent this year and 1.9 percent next.
“At the onset of the year, you’ll basically see investment funds searching for destinations,” said Emmanuel Ng, a currency strategist at Oversea-Chinese Banking in Singapore. “Inevitably, they will be going into emerging markets, including Asia.”
The rupiah, which lost 5.8 percent last month based on data compiled by Bloomberg that includes prices from offshore banks, will be the second-biggest gainer in the region during the six months through March with a 2.2 percent advance, OCBC forecasts. The yuan probably will strengthen 2.7 percent, the bank said.
“Indonesia’s story is backed by a positive sovereign outlook,” Ng said. Southeast Asia’s largest economy is ranked one step below investment grade by Moody’s Investors Service and Standard & Poor’s.
Westpac Banking Corp., the third-best forecaster, predicts Asian currencies will weaken even through the first quarter of 2012 as regional central banks cut borrowing costs to support growth, reducing their yield advantage over U.S. assets. Bank Indonesia unexpectedly reduced its benchmark interest rate on Oct. 11, while Taiwan, Malaysia, South Korea and the Philippines have refrained from raising rates at their latest reviews.
“Asian currencies excluding China will struggle to gain ground in the current environment with global growth slowing, rate hikes off the agenda and rate cuts looking increasingly likely,” said Huw McKay, a senior international economist at Westpac in Sydney.
The won, Malaysian ringgit and the Indian rupee will drop 0.5 percent in the six months ending March 31 to 1,184 per dollar, 3.21 and 49.21, respectively, according to estimates from Australia’s second-biggest lender.
‘Place to Be’
Aviva Investors, which oversees the equivalent of $423 billion globally, is looking to buy Asian currencies when market conditions stabilize.
“Asian currencies is the place to be over the longer term,” said Kevin Talbot, chief investment officer for Asian fixed income at Aviva in Singapore. “The bigger economies, China, Indonesia and South Korea, would do quite well because there’s lots of domestically generated demand and growth.”
Credit Suisse Group AG, the fourth-best forecaster, expects Asian currencies will appreciate in the next one to two months after manufacturing in the U.S. unexpectedly gained in September.
The U.S. Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group said on Oct. 3. A level of 50 is the dividing line between growth and contraction. European leaders are working on plans to make the continent’s banks raise as much as 200 billion euros ($276 billion) of additional capital.
“Our analysis shows Asian currencies tend to start appreciating after the U.S. ISM has stopped deteriorating,” said Goh Puay Yeong, a foreign exchange strategist in Singapore at Credit Suisse, Switzerland’s second-largest bank. “It looks like Europe will come up with a plan to stabilize credit markets.”
The rupiah will climb 6 percent to 8,550 per dollar in the six months through March, while the won will advance 5.4 percent to 1,118, according to the bank’s forecasts.
Strategists were ranked according to the accuracy of their estimates in each of six quarters beginning with the three months ended June 2010. To test long-term accuracy, Bloomberg News added one annual forecast, which was made on Sept. 30, 2010, for Sept. 30, 2011.
Only firms with at least four forecasts for a particular currency pair were ranked, and only those that qualified in at least six of 10 pairs were included in the ranking of best overall predictors. Thirty-one firms qualified.
--With assistance from Wei Lu and Mary Lowengard in New York. Editors: Sandy Hendry, James Regan
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