ASEAN currencies seen weak in H1<\/p>\n
Benjamin Pedley, Dow Jones, Singapore<\/p>\n
Southeast Asian currencies could weaken in early 2003 on soft
\nglobal demand, reversing the 2002 trend in which most of them
\ngained ground amid general dollar weakness as the Federal Reserve
\nguided U.S. interest rates to a 41-year low.<\/p>\n
Though expansionary monetary and fiscal policy will spur U.S.
\neconomic growth, it might not be until the second half of 2003
\nthat this filters through to southeast Asia in the form of
\nincreased demand for regional exports - a development that would
\nthen put a floor under the currencies of this region.<\/p>\n
In the interim, and given few signs of economic turnaround in
\neither the eurozone or Japan, dollar-denominated assets might
\nagain find favor among investors to the detriment of riskier
\ncurrencies.<\/p>\n
Added to that, the possibility of further easing by the Bank
\nof Japan to reflate the economy and offset the deflationary
\neffects of a planned cleanup of $400 billion in bad loans should
\npush down the yen and drag southeast Asian units lower in tandem.<\/p>\n
"Global growth will remain fragile, and Asia's external
\nsurplus economies (and currencies) are likely to be hurt by weak
\nexports. But currency weakness toward the beginning of 2003 may
\nabate in the latter half of the year in tandem with the yen,"
\nsaid UBS Warburg currency strategist Naomi Fink.<\/p>\n
"We expect the direction of the yen to be the leading driver
\nof Asian currencies," said Fink.<\/p>\n
Regional currencies often track the direction of the yen to
\npreserve price competitiveness on trade.<\/p>\n
Indeed, a 6.1 percent rise in the yen in 2002 versus the
\ndollar lifted most Southeast Asian units. The rupiah rose 16
\npercent, the Singapore dollar climbed 4.2 percent, and the baht
\ngained 1.4 percent.<\/p>\n
The exception was the peso, which slid 4 percent on concerns
\nover a burgeoning budget deficit.<\/p>\n
While the rupiah was the strongest performing unit in the
\nregion, analyst say geopolitical factors are conspiring again to
\ncreate downside risks for the Indonesian currency.<\/p>\n
Fink said "security risks" continue to hurt revenue from
\ntourism, which is roughly equivalent to the national current
\naccount surplus. "With risk perceptions unlikely to abate soon,
\nwe remain bearish on the rupiah over the medium- and longer-term
\nto its regional counterparts," she said. She forecasts the dollar
\nwill rise to Rp 9,500 in early 2003 from around Rp 8,985
\ncurrently.<\/p>\n
Foreign investor sentiment toward Indonesia was damaged by
\nOct. 12 attacks on the resort island of Bali, which killed almost
\n200 mainly Western tourists, as the island had been a relative
\nsafe-haven amid sectarian violence in recent years elsewhere in
\nthe archipelago.<\/p>\n
Tourism contributes around 4 percent to Indonesian gross
\ndomestic product, and employs eight million people nationwide
\nwith Bali the most popular Indonesian destination for foreign
\nvisitors.<\/p>\n
And with the heightened prospect of military conflict between
\nIraq and Western interests led by the U.S. and U.K. come risks
\nfor the Indonesian currency and bond markets.<\/p>\n
Just as events of 9\/11 polarized Western and Islamic interests
\nto the detriment of the rupiah and Jakarta's financial markets,
\nso too would conflict with Iraq.<\/p>\n
At the other end of the performance spectrum in 2002 was the
\nPhilippine peso, which tumbled on fiscal worries, which push up
\nbond yields and thereby make it even more difficult for the
\ngovernment and private sector to repay debts.<\/p>\n
The government expects the budget gap will narrow to 202
\nbillion pesos in 2003 from an estimated 223 billion pesos in
\n2002. It originally pegged the 2002 deficit at 130 billion pesos.<\/p>\n
Of all southeast Asian economies, Singapore is the most
\nleveraged to the external sector with non-oil domestic exports
\nequivalent to more than 70 percent of gross domestic product.<\/p>\n
Hence, if the currencies of Singapore's major trading partners
\nsuch as the euro and yen were to weaken - and many analysts
\nanticipate losses in the latter - this would provide room for
\nSingapore dollar losses against its U.S. counterpart.<\/p>\n
The baht might be one of the better performers in the region
\nin 2003.<\/p>\n
In the second half of 2002, Thai economic growth picked up
\nslightly as other economies slowed or, in the case of Singapore,
\ncontracted on a quarter-on-quarter basis.<\/p>\n
And Thai equities matched that economic record.<\/p>\n
The Bangkok market was the fifth best performed stock market
\nin the world in 2002 in dollar terms, returning a 22 percent gain
\ncompared to, for example, a 25 percent fall in Philippine stocks.<\/p>\n
Philip Wee, market strategist at Singapore's DBS Bank, said
\nthe sensitivity of the baht to foreign investor flows into the
\nlocal stock market should help the baht to continue its
\noutperformance of the Philippine unit.<\/p>\n
The divergence of what many analysts said are the best and
\nworst of Southeast Asian economies are reflected in recent
\nassessments by credit ratings agencies.<\/p>\n
Thailand received a positive outlook from Moody's Investors
\nService as Fitch Ratings joined Standard & Poor's in downgrading
\nthe Philippine debt outlook to negative on the government's "loss
\nof control over fiscal finances," says Wee.<\/p>",
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