Rupiah to Rupee Lead Worst Year for Asian Currencies Since 2008

Asian currencies completed their worst year since the 2008 global financial crisis as overseas investors fled emerging markets in anticipation of the Federal Reserve’s decision to taper its record stimulus.

Indonesia’s rupiah led losses in the region with its biggest annual decline since 2000, India’s rupee weakened for a third year and Thailand’s baht fell to the lowest level since 2010 amid concerns about current-account balances and increased political risk before elections due in 2014. China’s yuan rose to a 20-year high on optimism the government is stepping up efforts to boost the currency’s convertibility and South Korea’s won advanced for a second year.

The Bloomberg-JPMorgan Asia Dollar Index declined 1.8 percent to 116.11 this year as of 4:46 p.m. in Singapore, the most since a 5.9 percent slump in 2008. The gauge of 10 regional currencies excluding the Japanese yen climbed 2.6 percent in 2012. The Bloomberg U.S. Dollar Index advanced 3.4 percent in 2013, the most in five years.

“We see Asian currencies weakening modestly against the dollar next year as the U.S. fundamentals continue to improve and data there could surprise on the upside” in support of tapering, said Irene Cheung, a currency strategist in Singapore at Australia & New Zealand Banking Group Ltd. “There’s no clarity yet” as Indonesia, Thailand and India hold elections next year, she said.

The rupiah lost 21 percent to 12,170 per dollar, the rupee dropped 11 percent to 61.825 and the baht depreciated 6.8 percent to 32.82. Malaysia’s ringgit tumbled 6.7 percent to 3.2795, the most since the 1997 Asian crisis. The Philippine peso fell 7.5 percent, its worst drop since 2008, to 44.38.

Deficits, Elections

Indonesia’s current-account deficit reached a record 4.4 percent of gross domestic product in the second quarter, before narrowing to 3.8 percent in the third. India’s shortfall was an unprecedented 4.8 percent of GDP in the year ended March 2013, and the central bank estimates the gap in the broadest measure of trade will decline below 3 percent this fiscal year.

Thailand was set Feb. 2 for polls after anti-government protests that began in late October forced Prime Minister Yingluck Shinawatra to dissolve parliament this month and call for a snap election. India must hold national elections before May while Indonesia must hold presidential election by July as Susilo Bambang Yudhoyono’s term expires.

Fed Tapering

The Asia Dollar Index suffered the year’s worst month in May, falling 1.4 percent, after Fed Chairman Ben S. Bernanke told lawmakers the U.S. central bank may trim its $85 billion of monthly bond purchases once it’s confident of a sustained recovery in the world’s largest economy. The Fed on Dec. 18 announced it will reduce its debt buying to $75 billion from January, while pledging to keep interest rates near zero.

Net inflows into emerging Asia’s equity and bond funds dwindled to $3.6 billion in 2013 from $44.2 billion last year, according to ANZ, which cited EPFR GLobal data. Investors were net sellers of a total of $8 billion of stocks in Indonesia and Thailand, exchange data show.

Local-currency government bonds in Asia were set for a 4.2 percent loss versus a 7 percent gain in 2012, according to the Bloomberg Emerging Market Local Sovereign Asia Index. Stocks outside Japan were up 0.3 percent, the smallest gain in winning years since at least 1987.

Slowing Growth

The International Monetary Fund lowered its growth projection for emerging Asian economies in October, while the Asian Development Bank this month raised its estimate for China and cut its forecasts for Southeast Asia. Thailand and Taiwan cut their official gross domestic product predictions.

“Funds are returning to Europe and the U.S., where rates are expected to rise,” said Leon Chu, a Taipei-based economist at Jih Sun Securities. “The domestic economic outlook also hasn’t been optimistic.”

China’s yuan rallied for a fourth year to reach its strongest level in 20 years. The State Council, or the cabinet, estimated growth to be 7.6 percent in 2013, topping its 7.5 percent goal. The world’s second-largest economy expanded 7.7 percent in 2012.

The currency climbed 2.9 percent this year to 6.0539 per dollar in Shanghai, according to China Foreign Exchange Trade System. It touched 6.0506 today, the strongest level since the government unified official and market exchange rates at the end of 1993. The fixing rose 2.9 percent in 2013 to 6.1024.

Yuan Reforms

The People’s Bank of China will “basically” end intervention in the currency market and widen the yuan’s trading band in an “orderly” way, Governor Zhou Xiaochuan wrote in an article in a guidebook published last month explaining reforms outlined at a Communist Party meeting in November. The yuan overtook the euro as the world’s second-most used currency in global trade finance in October. Its trading band was last expanded in 2012 to 1 percent from 0.5 percent.

South Korea’s won closed at 1,055.49 per dollar for a 0.8 percent advance in 2013, even as the government intervened to prevent gains. It rallied 23 percent against the Japanese yen, a record based on Bloomberg-compiled data going back to 1986.

Elsewhere, Taiwan’s dollar declined 2.7 percent to NT$29.95, the first annual loss since 2008. Vietnam’s dong weakened 1.2 percent to 21,095 versus the greenback.

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