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.