Taiwan’s dollar and the Indonesian rupiah are forecast to lead a recovery in Asian currencies next year as attention shifts to the region’s growth potential and away from the reduction in U.S. monetary stimulus.
The Taiwanese currency will climb 2.8 percent by end-2014, while the rupiah will start reversing this year’s 20 percent loss by rising 1.6 percent, Bloomberg surveys of at least 18 analysts show. South Korea’s won is seen up 1.8 percent, China’s yuan 1.4 percent and the Thai baht 1 percent. The forecasts point to a rebound from the Bloomberg-JPMorgan Asia Dollar Index’s 2.2 percent drop this year, its biggest since 2008.
Taiwan’s potential export gains from a global economic pickup and Indonesia’s yield advantage over most of Asia are adding to the appeal of their currencies as Deutsche Bank AG, the world’s biggest foreign-exchange trader, says the region offers the best growth prospects in 2014. The Federal Reserve’s decision last week to start cutting its monthly bond buying has mostly been priced into Asian exchange rates, setting the stage for advances, Societe Generale SA said.
“We haven’t seen any toxic reaction to the Fed statement, there’s been no bloodbath,” Benoit Anne, the London-based head of emerging-market strategy at SocGen, said in a Dec. 20 phone interview. “When investors come back to work in January, they’re going to realize there’s a huge window of opportunity to go long emerging-market assets.”
Pacific Investment Management Co., the world’s largest manager of bond funds, and Deutsche Bank say Asia will receive a boost from a recovery in developed markets next year. The region’s emerging economies will grow 6.5 percent in 2014, outpacing the 5.1 percent expansion of developing nations around the world and 2 percent for advanced countries, the Washington-based International Monetary Fund forecast in October.
Asian currencies will hand investors a 2 percent return in 2014, while counterparts in the Europe, Middle East and Africa region will gain 4.5 percent and Latin Americas will lose 1 percent, Deutsche Bank predicts.
“Emerging markets are maturing,” Deutsche Bank analysts including New York-based Drausio Giacomelli, wrote in a Dec. 19 report. For growth, “Asia remains best placed.”
The Taiwanese dollar will strengthen to NT$29.3 by the end of next year, according to the median of 18 analyst estimates compiled by Bloomberg, after reaching a four-month low of NT$30.06 today. The currency has lost 3.4 percent this year, its biggest decline since it fell 5.7 percent in 2001.
The rupiah, this year’s worst performer among 12 Asian peers tracked by Bloomberg, will climb to 12,000 per dollar by the end of 2014, from 12,200, a separate survey predicts. The currency tumbled to a five-year low of 12,260 on Dec. 23.
China’s yuan and the South Korean won will probably perform better than peers in coming months, while the outlook for Malaysia’s ringgit is improving, according to Manik Narain, an emerging-market strategist at UBS AG.
Concerns remain about India’s rupee, which fell to a record low of 68.845 per dollar in August, and the rupiah, he said. The rupee will end next year at 62 per dollar, from 62.1637 today, according to another poll.
With the exception of China and South Korea, “we are not forecasting foreign-exchange appreciation in Asia,” London-based Narain said in a Dec. 20 phone interview. “We are particularly worried about India and Indonesia still.”
India and Indonesia will be the only nations among Asia’s 10 biggest economies to run current-account deficits in 2014, Deutsche Bank estimated in report dated Dec. 19.
Options are also signaling improved confidence in Asian currencies. One-month implied volatility, a gauge of expected moves in the exchange rate that’s used to price these contracts, fell in the past six months for all except one of the region’s 11 most-used currencies, data compiled by Bloomberg show. The measure increased for the rupiah.
Volatility had surged after Fed Chairman Ben S. Bernanke first signaled a reduction in the U.S. central bank’s stimulus program in May. The Asia Dollar Index, which lost 3.5 percent in the four months through August, has rebounded 0.9 percent since as markets adjusted to the imminent removal of U.S. bond buying.
After a year when strategy was dominated by expectations of when the Fed would taper stimulus, 2014 will focus on Asian governments’ economic reforms, according to UBS.
China’s leaders pledged last month to accelerate interest-rate and foreign-exchange reforms and to allow market forces to take a “decisive” role in the allocation of resources. India allowed foreign investors to buy more rupee debt this year and stepped up efforts to rein in its record current-account deficit.
China’s yuan will add to its 2.7 percent gain this year by climbing to 5.99 per dollar by the end of 2014, from 6.0746 today, strategists surveyed by Bloomberg predict. The currency reached a 20-year high of 6.0702 on Dec. 23.
“The theme for 2014 is looking more at internal fundamentals and commitment to reforming,” UBS’s Narain said.