BlackRock Inc. (BLK), the world’s biggest money manager, predicts North Asian currencies will outperform those in Southeast Asia as current-account surpluses shield their economies from a reduction in U.S. monetary stimulus.
The South Korean won and the Taiwanese dollar will be among the bigger beneficiaries of improving demand in the U.S. because of their reliance on exports, Joel Kim, head of Asia Pacific fixed income, said in a press briefing today in Singapore. The won is Asia’s best-performing currency this month, while Malaysia’s ringgit and Indonesia’s rupiah are leading losses in Southeast Asia.
“People are going to focus on final demand for developed markets coming back, which will ultimately be good, especially for Northeast Asian economies,” said Kim at BlackRock, which was overseeing $3.9 trillion in assets globally as of end-March. “The won has done quite well over the last couple of weeks. That’s one of our overweights in our portfolio.”
The U.S. is the second-biggest export market for South Korea and Taiwan, with shipments accounting for half of the former’s gross domestic product and 60 percent for the latter.
South Korea’s currency advanced 1.4 percent this month and reached a six-week high of 1,114.06 per dollar on July 17, according to data compiled by Bloomberg. It closed 0.4 percent lower at 1,126.18 in Seoul today. The Taiwan dollar fell 0.3 percent today to NT$30.025 and is little changed from June 28. The ringgit has weakened 1.1 percent in July, the rupiah 0.6 percent and the Philippine peso 0.5 percent.
BlackRock is less optimistic on the prospects of appreciation in the yuan because of China’s growth slowdown. Asia’s largest economy expanded 7.5 percent in the second quarter, compared with 7.7 percent in the prior three months. The yuan is the sole gainer in Asia this year, having climbed 1.5 percent.
“As China decelerates, it’s not unlikely that the stability and the slow appreciation facing the renminbi at one point is going to be reversed,” Kim said. “And you might even see some depreciation.”
In Southeast Asia, the Philippines’ current-account surplus widened 56 percent to $3.4 billion in the first quarter from the previous three months, central bank data show. Malaysia’s surplus shrank 62 percent to 8.7 billion ringgit ($2.7 billion), while Thailand posted deficits for three of the first five months of this year, according to official figures.
BlackRock is “a lot more cautious” on countries such as Indonesia and India because of their current-account deficits and “relatively poor fundamentals,” Kim said. “The Philippines is an exception as the fundamentals are much better.”
Growth in the region is slowing and inflation isn’t a concern, except for countries like Indonesia, supporting Asian bond markets, Kim said.
The Asian Development Bank on July 16 joined the International Monetary Fund in lowering forecasts for developing Asia, saying the slowdown in China will hurt the regional outlook.
Gross domestic product in developing Asia will probably increase 6.3 percent in 2013 and 6.4 percent next year, the Manila-based ADB said in the report. In April, it forecast expansion of 6.6 percent for this year and 6.7 percent in 2014. The IMF reduced its growth estimate for the region to 6.9 percent from 7.2 percent.
The recent sell-off in the region’s bonds has offered buying opportunities in certain markets such as Singapore, South Korea and Thailand, while debt in Indonesia and India will probably drop further, according to BlackRock.
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