Regional forex set for another fraught week<\/p>\n
SINGAPORE (Reuter): Jangled nerves on Asian regional foreign
\nexchange markets are unlikely to be soothed much this week, as
\ntraders keep a wary eye out for fresh sideswipes on the political
\nor economic fronts.<\/p>\n
Amid the kind of mayhem not seen since the Thai baht's
\nflotation in July, there were some precipitous falls last week,
\nwith the Indonesian rupiah, Malaysian ringgit and Philippine peso
\nall plunging to new lows.<\/p>\n
After the recent drubbing, sentiment is pretty much at rock
\nbottom but any adverse news will still send corporate investors
\nscrabbling to hedge local currency exposure with U.S. dollars,
\nanalysts said.<\/p>\n
While many traders are happy to keep clear of the whipsaw
\nmarkets, there is a compound effect as quite a few are still
\nhappy to jump aboard the bandwagon when corporate orders get it
\nrolling.<\/p>\n
\"Poor sentiment is playing a part but in the case of Indonesia
\nfor example it's quite clear there is a very big concern on the
\npart of corporates about the losses they are accepting,\" said
\nLarry Hatheway, chief economist at UBS in Singapore.<\/p>\n
Given private sector debt is about US$60-65 billion and the
\ndollar has risen over 50 percent against the rupiah you run into
\nestimates of balance sheet losses in the region of $15 billion.
\nThat is assuming most debt held was unhedged.<\/p>\n
\"With really no end in sight as to how far the rupiah can fall
\nit's quite clear, even though it's quite expensive in terms of
\nthe forward points you pay away, that it's probably time to hedge
\nif it's not too late,\" Hatheway added.<\/p>\n
\"These falls are fundamentally driven given the amount of
\nhedging activity we are seeing.\"<\/p>\n
The other major worry among overseas investors who still have
\nmoney tied up in the region is the shaky financial sector, and
\nproblems here spread right across the region.<\/p>\n
\"The common theme that is running throughout the region right
\nnow is a financial sector that people view as vulnerable,\" said
\nChiang Yao Chye, Head of Asia Pacific Research at CIBC in
\nSingapore.<\/p>\n
\"Thailand's financial sector collapsed just like that, and
\nthere is concern as to whether any of the others are going to go.
\nMalaysia, the Philippines and Indonesia obviously suffer to a
\nlarge extent from this.\"<\/p>\n
So, poor sentiment, corporates continuing to hedge and
\noverseas investors worried about the financial sector are all
\ndriving currencies lower. Is there anything else?<\/p>\n
The answer is yes, two things, politics and the need to act on
\nrecent promises to fix acute economic imbalances.<\/p>\n
These are really two side of the same coin and analysts say
\nunless politicians get serious, and start to deliver on economic
\nreform, regional currencies will continue to slide.<\/p>\n
Malaysian Prime Minister Mahathir Mohamad sent overseas
\ninvestors running for cover, sparking a four percent fall in the
\nringgit last Wednesday, by again calling for greater regulation
\nof currency markets.<\/p>\n
He repeated his call for tighter curbs at the weekend during a
\nvisit to the Argentine capital Buenos Aires.<\/p>\n
But Malaysia, and others in the region, depend heavily on
\noverseas investment and this kind of talk simply frightens fund
\nmanagers who will obviously not want to invest in a country where
\nthe regulatory door might be slammed in their face.<\/p>\n
There is then the question of politically unpopular measures
\nto heal the regional economies such as Thai Prime Minister
\nChavalit Yongchaiyudh's promise to cut billions of baht from the
\nbudget next year in order to meet the International Monetary
\nFund's target of a small budget surplus.<\/p>\n
Likewise in Malaysia there has been nice sounding rhetoric
\nabout scaling back large-scale infrastructure projects.<\/p>\n
But unless governments deliver and attempt to address some of
\nthe huge economic imbalances, the markets will not give them the
\nbenefit of the doubt.<\/p>\n
\"All these currencies are vulnerable until the governments
\nstep up to the plate, do what they say they are going to do and
\ntake solid action,\" UBS's Hatheway said.<\/p>\n
Here is the latest state of play of the regional currencies in
\nterms of their fall against the U.S. dollar since the crisis
\nbegan. The reference point is the close on July 1 to the close on
\nFriday October 3.<\/p>\n
Percentage changes have been calculated as the local
\ncurrency's fall against the dollar not the dollar's rise against
\nthe local currency.<\/p>\n
July 1 Oct. 3 Fall (%)
\n Malaysian ringgit 2.5240 3.3700 - 25.1
\n Indonesian rupiah 2,431.00 3,690.00 - 34.1
\n Thai baht (onshore rate) 25.880 36.35 - 28.8
\n Philippine peso 26.35 34.60 - 23.8<\/p>",
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