Asian exporters, battling a slump in demand, are calling for their central banks to intervene after capital inflows contributed to the best start to the year on record for the region’s currencies.
Executives at LG Chem Ltd., South Korea’s biggest chemicals maker, and Bangkok-based Chengteh Chinaware (Thailand) Co. said policy makers should curb volatility, while TLtek Co., an exporter of auto-part making machines based on the outskirts of Seoul, cites the won’s strength against the euro for its currency losses. The chairman of the Malaysian American Electronics Industry, which represents U.S. companies such as Motorola Inc., and Dell Inc., said the central bank should “stabilize the ringgit.”
Asian policy makers switched focus to spurring economic growth after slowing inflation prompted Indonesia (IDBIRATE), the Philippines and Thailand to cut interest rates in the past six months. The ringgit, won and Chinese yuan climbed more than 5 percent against the euro in the past year, making exports less competitive as Europe’s debt crisis damps demand. The Bloomberg- JPMorgan Asian Dollar Index (ADXY) tracking regional currencies against the greenback rose 2 percent this year, the most since the data goes back to 1995.
“The central bank should intervene in case gains in the won quicken and threaten tolerable levels,” Owen Sung, chief spokesman at LG Chem in Seoul, said in a Feb. 28 interview. “A sudden rally in the won will hurt our export earnings.”
Policy makers are more likely to focus on the slowdown in global growth rather than the threat of rising oil prices on inflation, according to Sameer Goel, the head of Asian rates and currency strategy at Deutsche Bank AG in Singapore. Crude reached a 10-month high of $110.55 on March 1 and has risen 8.3 percent this year.
“The export cycle has definitely been slowing down,” he said. “There’s a less obvious reason for them to allow appreciation to tackle imported inflation at this stage of the cycle, unless oil prices remain a persistent concern.”
Taiwan Semiconductor Manufacturing Co. (2330), the world’s largest contract manufacturer of chips, posted a third straight decline in profit in the three months ended Dec. 31. Hyundai Steel Co. (004020), South Korea’s second-biggest steelmaker, saw lower profit in the quarter and forecast a 3.9 percent drop in sales in 2012. Tata Steel Ltd. (TATA), India’s biggest producer, reported an unexpected loss after demand weakened in Europe.
Overseas sales in South Korea slowed to an average 6.8 percent in the first two months of 2012 after increasing 8.2 percent in December, Nomura Holdings Inc. estimated after accounting for the Lunar New Year Holiday. Shipments (PHEXYOY) from the Philippines shrank for an eighth month in December.
Money that policy makers in Europe and the U.S. are pumping into their economies is finding its way to Asia, where interest rates are higher. Emerging-market bond funds attracted record inflows of $2.14 billion in the first week of February and $8.7 billion this year, according to data compiled by Cambridge, Massachusetts-based research firm EPFR Global.
Expanding capital inflows have an inflationary effect and complicate policy making, Philippine central bank Governor Amando Tetangco said at a forum in Manila on Feb. 28. Bank Negara Malaysia is seeking an “orderly” market and doesn’t see a threat of imported inflation, Governor Zeti Akhtar Aziz said on Feb. 27. Bank of Thailand Deputy Governor Suchada Kirakul said Feb. 29 it had intervened “a little bit” in the fourth week of February. Bank Indonesia Governor Darmin Nasution said on Feb. 10 that the monetary authority had an intervention strategy to preserve stability.
Brazil is ready to take more measures to stem a rally in the real, the world’s third-best performing major currency in 2012, after broadening the scope of a tax on foreign loans and bonds, Finance Minister Guido Mantega said on March 1.
Asian nations, whose foreign-exchange reserves dropped at the height of the emerging-market sell-off in September, will probably intervene to replenish their holdings, New York-based Goldman Sachs Group Inc. analysts Robin Brooks and Stacy Carlson wrote in a Feb. 1 report.
A rebound in reserves in South Korea and Indonesia this year signaled policy makers probably sold their currencies. South Korea’s holdings rose 1.4 percent in February to $315.8 billion after increasing 1.6 percent the previous month, Bank of Korea data today showed. Indonesia’s reserves climbed 1.7 percent to $112 billion in January after retreating in the four months through December.
China has curbed volatility in the yuan since a government report on Feb. 10 showed exports shrank in January for the first time since November 2009, keeping the currency at 6.3 per dollar. The currency rose 8.3 percent since the start of 2010.
‘Stabilize the Ringgit’
“The yuan’s rise has seriously hurt our U.S. businesses,” said Eva Chen, sales manager of Pacific Wide Ltd., a Taiwan- registered company with factories in Guangxi, China, that exports lamps. “But we are very lucky we started expanding in China’s domestic market last year,” Chen said in an interview in Taipei on Feb. 17.
Malaysia’s export growth slowed to 6.1 percent in December, the least since May, a report in February showed. Inflation has held around 3 percent for the past year. The ringgit reached 2.9873 per dollar on March 1, the strongest level since September.
“We hope the ringgit will be stable round 3.1,” Wong Siew Hai, chairman of the Malaysian American Electronics Industry, said in an e-mail on Feb. 20. Bank Negara “needs to stabilize the ringgit to a narrow range so that it’s more predictable and help businesses to be competitive,” he said.
India’s growth is inevitably going to be slower partly due to a “hostile” global environment, Reserve Bank of India Deputy Governor Subir Gokarn said in Mumbai on March 1.
“The exchange-rate risk on the bottom-line has increased,” Manish Mandhana, joint managing director at Mandhana Industries Ltd. (MMDN), a garment supplier to Tommy Hilfiger BV, said in an interview on Feb. 22 from Mumbai. “The developments in Europe haven’t been encouraging, which means we have to tighten our costs to maintain margins.”
Developing Asia may grow 7.3 percent this year, compared with an earlier forecast of 8 percent and an expansion of 7.9 percent in 2011, the International Monetary Fund said in a report last month. Currency intervention is a valid instrument for emerging-market central banks to use to “achieve sustained and stable growth,” the IMF wrote in the Feb. 29 report.
“The strengthening baht will make life a lot harder for us because we also need to cope with rising wage and energy costs,” said Somnuk Nacasaksevee, deputy managing director at Chengteh Chinaware, which makes Walt Disney Co. mugs shipped to the U.S. and Europe. “The central bank should help minimize the volatility.”
Continued euro depreciation could affect Samsung Electronics Co.’s earnings, Robert Yi, Seoul-based senior vice president for investor relations, said in a conference call on Jan. 27. The won has gained 2.4 percent against the euro in the past six months.
“It hurts my heart whenever I think of currency losses from deals settled in euros,” said Ahn Yong Joon, chief executive officer at TLtek, which gets 30 percent of its sales from Europe. “I am also a little concerned that orders from Europe may decline.”
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