Rupee, Offshore Yuan Top Picks at Deutsche Bank on Taper

Deutsche Bank AG, the world’s largest currency trader, favors India’s rupee and the offshore yuan the most among Asian currencies as global central banks begin scaling back stimulus.

The rupee has strengthened the most in the region in the past three months as India’s improving trade balance allowed it to shrug off the “fragile five” tag coined by Morgan Stanley last year to describe currencies most vulnerable to capital flight. The yuan traded in Hong Kong and the onshore currency, officially called the renminbi, rank second and third as Asia’s largest economy shows no signs of slowing amid a clampdown on unregulated lending and monetary tightening.

The rupee “has migrated out of the fragile bucket on an improvement in external balances, rebuilding of interest in debt portfolio flows and enhancement in policy credibility,” Sameer Goel, Deutsche Bank’s head of Asian interest-rate and foreign-exchange research in Singapore, said in an e-mail interview yesterday. “The appreciation pressure on the renminbi should sustain given the healthy level of economic growth.”

Global funds added $3.45 billion to holdings of India’s local-currency debt this year as Reserve Bank of India Governor Raghuram Rajan raised interest rates to curb Asia’s fastest consumer-price gains and stabilized the rupee by offering discounted swaps for dollars raised by banks. China’s statistics bureau said last month that the nation’s economy grew 7.7 percent last year on an inflation-adjusted basis, the same pace as in 2012.

Rupee Rebound

The rupee has strengthened 0.9 percent in three months to 61.8587 per dollar after rebounding from a record low of 68.85 on Aug. 28. The offshore yuan advanced 0.6 percent in three months to 6.0375, and touched an all-time high of 6.0173 in Hong Kong on Jan. 14.

Emerging-market currencies suffered their biggest selloff since 2008 over the past year, as the Federal Reserve reduced its unprecedented monetary stimulus and China’s manufacturing industry slowed. Deutsche Bank’s Goel said Asian currencies and interest-rate swaps will climb in 2014, aided by growth in developed economies and a “normalization” of borrowing costs around the world.

“The biggest challenge for Asian currencies is the ability of local markets to continue to attract investments,” Goel said. “They are driven by a broader global narrative which includes a constructive growth outlook.”

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