Asian Currencies Set for Worst Month Since 1997 Crisis Caused IMF Bailouts
Asia Currencies Set for Worst Month Since '97
Goh Seng Chong/Bloomberg News
Images of various currencies are displayed outside a money changer in Kuala Lumpur, Malaysia.
Images of various currencies are displayed outside a money changer in Kuala Lumpur, Malaysia. Photographer: Goh Seng Chong/Bloomberg News
Asian currencies were set for their biggest monthly loss in more than a decade as concern some European nations will struggle to pay their debts and a global slowdown bolstered demand for the relative safety of the dollar.
South Korea’s won completed its worst month since February 2009 and Taiwan’s dollar dropped the most since October 1997 as overseas funds pulled more than $4 billion from their stock markets. About three-quarters of 1,031 investors, analysts and traders said the euro-area economy will fall into recession during the next 12 months, according to a Bloomberg quarterly Global Poll published yesterday. The Federal Reserve warned of “significant downside risks” to the U.S. economy on Sept. 21.
“The odds are rising for a recession in Europe and we are seeing adjustments to market positioning on risk aversion,” said Roy Teo, a currency strategist at ABN Amro Private Bank in Singapore. “Asian economies and currencies will not be spared as global growth is revised down.”
The Bloomberg-JPMorgan Asia Dollar Index slid 3.9 percent this month to 115.03, the biggest drop since December 1997, as of 4:35 p.m. in Hong Kong. The won lost 9.4 percent to 1,178.10 per dollar, Taiwan’s dollar dropped 4.9 percent to NT$30.506 and Malaysia’s ringgit weakened 6.8 percent to 3.1888, according to data compiled by Bloomberg. The Thai baht depreciated 3.8 percent to 31.08, its worst performance since March 2001.
Global funds pulled $2.6 billion from Taiwanese equities this month through yesterday and cut their holdings in South Korea by $1.5 billion, exchange data show. In Thailand, they sold $612 million more equities and $61 million more government debt than they bought.
Market Intervention
The International Monetary Fund lowered its forecast for 2011 global growth to 4 percent from 4.3 percent, and for 2012 to 4 percent from 4.5 percent last week, predicting a “severe” fallout if Europe fails to contain its debt crisis. Central banks in Malaysia, Indonesia and the Philippines confirmed in the past two weeks that they intervened to support their currencies, while counterparts in India, South Korea and Thailand said they were prepared to take similar action.
“Asia’s currencies are under pressure because of fund outflows as investors have been risk averse due mainly to the European debt crisis,” said Kozo Hasegawa, a trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Sentiment may not recover anytime soon.”
Government reports today showed industrial production rose less than economists expected in South Korea and Japan and a manufacturing gauge in China contracted for a third month in September based on an index tracked by HSBC Holdings Plc. Taiwan kept its benchmark interest rate on hold at 1.875 percent after its quarterly review yesterday, ending a run of five increases since mid-2010.
Production, Trade
The won dropped 0.4 percent in Seoul today, approaching a one-year low of 1,196.13 reached Sept. 23. Factory output rose 4.8 percent in August from a year earlier, less than the 6.1 percent drop forecast in a Bloomberg survey of economists. Data tomorrow are expected to show exports rose in September at the slowest pace in three months, based on a separate survey. The Bank of Korea reported yesterday an August current-account surplus of $401 million that was the smallest in seven months.
Europe’s debt crisis “will continue to dominate market sentiment for at least a month,” said Kim Doo Hyun, a senior currency dealer with Korea Exchange Bank in Seoul. “Investors will pay attention to trade data after the current-account surplus narrowed in August.”
The ringgit slipped 0.3 percent today, capping its worst month since June 2008. The rupiah gained today to trade at 8,825 per dollar, trimming losses this month to 3.4 percent. The baht also gained 0.3 percent today, rebounding from a one-year low of 31.24 per dollar yesterday.
India’s rupee declined 6 percent to 48.96 per dollar this month in Mumbai before the currency market closed today for a holiday, after sliding 4.1 percent in August. The Philippine peso weakened 3.3 percent for the month to 43.735 while China’s yuan fell 0.1 percent to 6.3859 for its first loss since January.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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