Dollar weakness a bonanza for Asia, says brokerage
Dollar weakness a bonanza for Asia, says brokerage
Agence France-Presse, Hong Kong
ING Financial Markets said Thursday that Hong Kong, China, Malaysia, Indonesia and Thailand are poised to generate robust investor returns due to ongoing weakness in the U.S. dollar.
The Dutch brokerage said in a report that a low U.S. dollar would boost the performance of both Asian economies and stock markets in the second half of the year, given the fact that several local currencies are either pegged to the U.S. dollar or closely shadowing its performance.
It forecast the U.S. dollar to reach a low of 1.20 euros by the end of 2004.
"A weaker U.S. dollar means weaker Asian currencies, which makes Asian economies more price competitive in global trade," ING said.
"Furthermore, as the United States is the largest buyer of Asian exports, U.S. import prices will rise as the U.S. dollar continues to weaken, in turn triggering rises in Asian export prices and increasing the U.S. dollar value of global trade," it said.
BTo support its argument, it cited Hong Kong, where import prices have risen 0.3 percent year-on-year against a 5.0 percent decline year-on-year in February 2002.
Asian export prices in January-March were also up 2.0 percent year-on-year.
The brokerage said it expects Asian countries with the highest percentage of service companies will be the biggest beneficiaries of this "deflation" phenomenon.
It said markets in Hong Kong, China, Malaysia, Indonesia and Thailand were expected to be the strongest performers under this scenario with banks, conglomerates, consumer stocks and property, seen as the best equity investment.
"We predict that by the end of 2003, Asian markets will be up 17 percent from current levels," said Markus Rosgen, ING Financial Markets chief strategist.
"In the very near future, markets will consolidate as we come to the end of the post-Iraq war rally, and could surrender as much as 50 percent of their recent gains," he said.
"However, that will be temporary, and investors should treat this as a buying opportunity.
"In the long-term Asia's stock market performance is set to diverge from the market behavior in Europe and the U.S.," Rosgen said.
"While these markets will continue to be plagued by slow growth and sluggish markets, Asia will be propelled by the increasing competitiveness and the growing inflation that a weak U.S. dollar provides."