Asian currencies caned, more grief to come: Analysts
Asian currencies caned, more grief to come: Analysts
SINGAPORE (Reuters): Battered Asian currencies took another severe beating last week and there is a better than even chance they will suffer again during the next five trading sessions, financial analysts said.
South Korea's won fell a desperate 28 percent in just five days, a fall that rattled investors and sent stock markets in Asia and elsewhere tumbling.
The won's woes began on Monday when a leaked document indicated South Korea's short-term debt was US$100 billion, twice as large as the market had been braced for.
This sparked a belief that the International Monetary Fund's (IMF) $57 billion rescue package will have to be about doubled to prevent a mountain of short-term debt from burying the fragile economy.
"The problem for Korea now is that the whole crisis has not ended," said Sani Hamid, Emerging Markets Analyst at S&P MMS Singapore.
"Currently, the won is the main focus. We had a slew of very bad news from Indonesia, Thailand and now it's the turn of the Korean won to lead the pack."
So far, there is no sign of extra cash and until there is, or at least until the IMF hints there might be, the won will undoubtedly continue to feel the heat.
The same leaked document also showed that South Korea's usable reserves were only $6 billion, meaning the central bank is helpless to stop the won from slipping further.
Another hapless currency at the moment is the Indonesian rupiah, which on Friday dived on news President Soeharto would not attend an East Asian summit in Malaysia this week on doctor's orders.
The rupiah sank 22 percent over the week to well below the 5,000 per dollar level. Soeharto has no apparent successor and fears of political turmoil in the nation of 200 million people is adding to the gloomy Indonesian financial picture.
There remains the problem of corporate demand for dollars in Indonesia and analysts who have visited the country lately said firms there still need dollars, further pressuring the rupiah.
"It's hard to find an Indonesian corporate who does not need to buy dollars," said one analyst who preferred not to be named. "Even after all this, dollars are still in demand. It's hard to see the pressure coming off yet."
To a certain extent the same goes for the Thai baht which analysts said looks totally defenseless if other regional currencies continue to be punished.
A trader at Bank of America in Bangkok said on Friday year-end commercial demand for dollars was evident with foreign oil firms among major bidders. The baht fell seven percent over the week.
He reckoned the baht was going to consolidate at about 45 per dollar, but only if the regional currency crisis did not intensify in the coming week.
The Malaysian ringgit faired well, falling 1.5 percent on optimism the package of painful economic measures announced by Finance Minister Anwar would restore confidence.
In the near-term, the ringgit should remain immune to the worst excesses of the other regional currencies, analysts said. But as time goes on, unless there was solid action from the government, the ringgit would resume its fall, they said.
Regional currencies also have the potential to be hurt by the extremely thin end-year trading conditions.
Tight liquidity tends to exacerbate price movements and even the smallest dollar buy order can do severe harm.
"Liquidity is worse than usual at this time of year and people are keeping clear of the market," said Chiang Yao Chye, Head of Asia-Pacific Research at CIBC in Singapore.
"Low liquidity just magnifies price movements and that's what we've seen, it doesn't take much to move the market five or ten percent."
Below is a breakdown of market action since the beginning of July when the Asian currency turmoil really took hold.
Currency movements are in percentage terms and reflect the local unit's fall against the dollar, not the dollar's rise.
Currency Current value Move since July 1
Indonesian Rupiah 5,120.00 -52.50%
Thai Baht 44.90 -42.00%
Korean Won 1,710.00 -48.00%
Malaysian Ringgit 3.80 -33.50%
Philippine Peso 37.80 -30.00%
Taiwan dollar 32.32 -14.00%
Singapore dollar 1.65 -13.50%
Hong Kong dollar 7.75 -0.05%