Asian currencies go from bad to worse: Analysts

Asian currencies go from bad to worse: Analysts

SINGAPORE (Reuters): The aftershocks of the '97 crisis have
meant the outlook for Asian regional currencies has never been
that bright, but things have recently taken a turn for the worse.

High oil prices and now the worry over global demand for
electronics have lately compounded the effect of a stubbornly
strong U.S. dollar.

These new factors, analysts say, are only helping unmask some
of the nagging structural problems Asian governments have yet to
address.

And growing uncertainties in the political pit of the
Philippines, Indonesia and Thailand are likely to keep the
cauldron on the boil.

"Not only do they (Asian economies) have their own problems,
but the external environment has worsened and I can't see that
changing for the better in the medium term...say the next six to
12 months," said Mansoor Mohi-uddin, regional currency strategist
at UBS Warburg.

The bank's six to 12 month target for the baht is 45, for the
peso 48, and for the rupiah 10,000.

The baht was quoted at 43.35 to the dollar, the peso at 48.35,
and the rupiah at 8,920 at 0515 GMT on Friday. Even the stalwart
Singapore dollar was hovering not far from its 25-month lows of
1.76, a victim of the regional malaise.

Despite lingering doubts about their resolve to restructure
debt-ridden corporate and troubled financial sectors, Asian
economies rode the tide of strong global growth backed by a
booming U.S. economy and low oil prices earlier in the year.

All that changed as oil prices swelled and the U.S. Federal
Reserve jacked up interest rates, pushing the dollar higher.

As a result, growth rates are flattening out across the
region, trade surpluses are shrinking, and high oil prices are
fueling inflationary upticks.

In a recent research report, Merrill Lynch said while export
growth was still strong in Asia, a lack of foreign capital
inflows, dormant domestic bank lending, and an easing world
economy would affect both growth and exports.

Analysts said some of the currencies might have hit a
technical floor, as they have already exceeded their year-end
targets.

But they predict tough times ahead as the U.S. economy shows
signs of slowing, the threat of more U.S. rate hikes remains, and
oil prices refuse to subside.

And with most analysts expecting a soft landing for the U.S.
economy, the dollar is not likely to shed much of its strength
any time soon.

"The dollar will correct as the economy slows down and I
believe the huge current account deficit they have will be priced
in eventually. But that is likely to happen in a couple of
years," said David Simmonds, regional currency strategist at
Citibank.

Outflows from the equity markets, tracking the global sell-off
in technology shares, are making the outlook even worse.

Nomura Asia, looking at flows of open-end retail mutual funds
in the U.S. and Japan, said U.S. investors pulled out $75.2
million in the week ending October 6.

It said year-to-date cumulative flows slipped further into
negative territory of $1.4 billion, compared with a net outflow
of $180.1 million for the whole of 1999.

Japanese investors pulled out $49.5 million in August -- the
third straight month of withdrawals. But year-to-date flows
remain well in positive territory at $519.3 million. Last year
ended in an overall outflow of $353.5 million.

However, some analysts believe demand for electronics in
general, and DRAMs and microchips in particular, was not likely
to fall as much as the jitters on Wall Street suggest.

"I believe the techs have been rather oversold. I still think
DRAM prices will rebound at some point and the demand will remain
strong," Simmonds of Citibank said.

He said the Korean won and Taiwan dollar, given their
sensitivity to their equity markets, could hit weaker levels of
1,140 and 31.50 respectively in the short-run.

But a medium-term rebound in equity markets could push the won
back to around 1,100 and the Taiwan dollar to 30.50, he said.