Asian Currencies Complete Biggest Annual Gain Since 2006 on Capital Flows
By Patricia Lui – Dec 31, 2010
Asian currencies completed their biggest gain since 2006 as the region’s world-leading economic growth and widening interest-rate premiums attracted capital from overseas.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active currencies excluding the yen, climbed 5.2 percent in 2010 as funds based abroad poured a total of $63.4 billion into shares in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand. The International Monetary Fund forecasts Asia’s developing economies will expand 9.4 percent in 2010 versus 2.7 percent in advanced countries.
“The combination of strong growth and rising interest rates are attracting capital inflows into the region,” said David Cohen, an economist at Action Economics Ltd. in Singapore. “Asian currencies have very strong fundamentals and as China continues its appreciation of the yuan next year, the others will follow.”
Malaysia’s ringgit led gains in Asia last year, advancing 11.8 percent to 3.0635 per dollar in Kuala Lumpur, its best year since 1973, according to data compiled by Bloomberg. The nation’s central bank raised interest rates three times to 2.75 percent to stem inflation amid an influx of overseas capital.
The MSCI Asia-Pacific Index of regional stocks rallied 14.3 percent last year, beating the 12.8 percent advance in the Standard & Poor’s 500 share index.
Thailand’s baht climbed 11 percent last year, the second- best performance in Asia excluding the yen. The finance ministry this week raised its forecast for 2010 economic growth to 7.8 percent from 7.5 percent, citing an increase in exports.
The currency strengthened 0.6 percent yesterday to 29.98 per dollar in Bangkok, according to data compiled by Bloomberg. Elsewhere, Singapore’s dollar rose 9.3 percent last year to S$1.2823, the Philippine peso appreciated 5.7 percent to 43.62 and Taiwan’s dollar gained 5.2 percent in 2010 to NT$30.368.
Singapore’s dollar had its best annual performance since 1994 after the central bank last year unexpectedly sought a stronger currency to curb inflation. It reached S$1.2817 on Nov. 4, its highest level since at least 1981 when Bloomberg began compiling the data.
A report on Jan. 3 may show the economy expanded 13.2 percent in the fourth quarter of 2010 from a year earlier, according to the median estimate of economists surveyed by Bloomberg News.
Taiwan’s central bank on Dec. 30 unveiled additional measures to counter capital inflows as it raised borrowing costs for the third time last year. It lifted the reserve requirement on some local-currency deposits by foreigners to as much as 90 percent. Policy makers raised the policy rate to 1.625 percent from 1.5 percent, compared with near zero rates in the U.S. and 1 percent in the euro area.
Taiwan’s dollar fell 0.5 percent yesterday, after being 2.4 percent higher a minute before trading ended, on suspected intervention by the central bank, according to traders who declined to be identified.
“They will continue to intervene and adopt capital controls to manage the inflows,” Cohen of Action Economics said. “But most people expect Asian currencies to be stronger next year.”
Indonesia’s rupiah gained 4.6 percent to 8,978 and the Indian rupee appreciated 4.1 percent to 44.71.
“Stable economic growth and foreign investors’ need for quality investments helped the rupiah to gain,” said Wiwig Santoso, head of treasury and markets at PT Bank DBS Indonesia in Jakarta.
Purchases of Indian stocks by foreigners for 2010 reached a record $29.3 billion on Dec. 6, according to the Securities & Exchange Board of India. The economy expanded 8.9 percent in the three months ended Sept. 30, government data show.
“Inflows will sustain in 2011 because India’s growth story is intact,” said Roy Paul, Mumbai-based deputy general manager at Federal Bank Ltd. “There’s a sharp chance the rupee will appreciate further.”
China’s yuan strengthened beyond 6.6 per dollar for the first time in 17 years bringing gains for 2010 to 3.6 percent on speculation China will seek appreciation to tame inflation. The currency climbed 0.6 percent from a week ago to 6.5897.
Gains will likely happen in the first quarter because of Hu Jintao’s state visit to Washington this month, said Craig Chan, an Asia foreign-exchange strategist at Nomura Singapore Ltd. on Dec. 16. The House of Representatives passed legislation in September letting U.S. companies petition for duties on Chinese imports to compensate for the effect of a weak yuan.