Forward currency market booms in S'pore

Forward currency market booms in S'pore

SINGAPORE (Reuter): Burgeoning interest in Southeast Asia's
high-yield currencies and heavy capital and investment flows into
the region will boost Singapore's forward currency markets this
year, dealers said yesterday.

The bulk of the increase will be in exotic currencies, chiefly
the Thai baht and the Indonesian rupiah.

"The most attractive thing about the baht and the rupiah is
that they both hold high interest rates," said one senior forward
currency dealer with a large U.S. bank in Singapore.

"With the baht or rupiah you benefit from at least three to
five percent carry (interest gain) compared to the U.S. dollar
when you hold their currencies," the dealer said.

Dealers said the Thai baht had shown a particularly large rise
in trading volume. Other Asian currencies garnering interest were
the Philippine peso, the Taiwan dollar and the Korean won.

Forward currency transactions in Singapore comprised 2.8
percent of average daily turnover of US$105.4 billion for April
1995 or almost US$3 billion in total, the Monetary Authority of
Singapore (MAS), the republic's defacto central bank, said in a
report in September.

Forex industry sources said current trading volume for Asian
currency forward markets total close to US$6 billion daily in all
the regional capitals combined.

"It is becoming much more active because people are taking
positions with strategic views on Asian currencies now," said a
senior economist with a large investment organization.

He said with the climate of low worldwide interest rates, more
strategic funds were likely to maintain large open positions in
the forward markets in exotic currencies such as the Thai baht
and Indonesian rupiah.

"They offer good rolling yields and there is relatively very
little risk in a low interest rate environment," he added.

The liquidity is also reinforced by hedging from investors in
Southeast Asia's equity markets and corporate investors, such as
regional importers and exporters, dealers said.

"Southeast Asia's trading volumes from inter-country trades
have increased significantly, and we see more trade flows from
end-users impacting both the forward and forex markets," said a
U.S. bank dealer.

Dealers said trading volume in forwards was still led by the
major currencies such as the dollar, yen and mark but Asian
currencies are fast catching up.

"In terms of volumes, it's mainly the majors, but in terms of
interest as a bank, our focus is on Asian currencies (during
Asian trading hours)," said Chris Moser, Asian interest rate
trader with SBC Warburg in Singapore.

"The interest in Asian currencies is very high and it is here
to stay," he said, adding that most foreign banks in Singapore
have switched their trading focus from trading in the major
currencies to Asian exotics which have a higher risk premium
attached.

Not only are overall volumes increasing, but position sizes
taken by investors and speculators in the forward market are also
growing, dealers said.

"It is a natural development for a market that is growing,"
said a senior currency strategist with a large U.S. bank in
Singapore.