SE Asia currencies up as U.S. stocks fall
SE Asia currencies up as U.S. stocks fall
SINGAPORE (Bloomberg): The Singapore dollar and other Southeast Asian currencies rose yesterday as the plunge in U.S. stocks raised concern investors will sell U.S. securities and convert the dollar proceeds into other currencies.
The Singapore dollar strengthened 0.2 percent to 1.7227 to the U.S. dollar. The Malaysian ringgit rose 0.4 percent to 4.1300 to the dollar. The Indonesian rupiah rose 1.8 percent to 12,725. The Philippine peso was little changed at 42.175 to the dollar from 42.155 late Tuesday. The Thai baht fell 0.1 percent to 40.82 to the dollar.
"The dollar (fell) after the decline in U.S. stocks, making the yen and other currencies look stronger," said Chia Woon Khien, head of Asian research at Skandinaviska Enskilda Banken in Singapore.
In the U.S. Tuesday, the Dow Jones Industrial Average fell 3.4 percent, its worst decline since the Oct. 27 tumble.
The strength in the yen against the dollar also helped the region's currencies. The dollar was recently at 144.04 yen.
The performance of Southeast Asian currencies is closely tied to the yen, as countries such as Malaysia and Thailand look to increasing exports to Japan, Asia's biggest economy, to pull themselves out of an economic slump.
Japan is in its worst recession in 50 years, raising concern the world's second-biggest economy will not be able to increase its imports of Asian goods, which range from textiles to televisions.
Yen, yuan
Investors are cautious about selling the yen for the dollar while awaiting new steps Japan's new leaders are expected to announce in the coming weeks to pull the economy out of a slump.
"Investors are going to give Japan some time before they raise their expectations for reforms," said Terence Ngooi, manager for strategic trading at Sanwa Bank in Singapore.
Prime Minister Keizo Obuchi took over the leadership from Ryutaro Hashimoto last week.
"There wasn't any major change to Japan's economic outlook," Chia said, adding that if investors perceive that the country is still dragging its feet on cleaning up the banking industry and imposing other reforms, the dollar could rise against the yen.
The gain in Southeast Asian currencies could also be limited as the yen's decline fueled speculation China may devalue its yuan to make its exports cheaper.
Factories in China which assemble electronic parts are seeing their export competitiveness eroded because of the decline in Southeast Asian currencies. In yen terms, Chinese exports have also become more expensive following the yen's 17 percent decline against the dollar in the past 12 months.
A devaluation of the yuan could weigh on the Thai baht, Malaysian ringgit, the Indonesian rupiah and the Philippine peso, by making Southeast Asian exports less attractive. These countries are trying to increase exports and boost government revenue.
Thailand and Indonesia are in their first recession in three decades, following a surge in interest rates when investors pulled out amid the currency turmoil. Malaysia's teetering on the brink of a recession while Singapore said its neighbors' woes will crimp its growth.
U.S. Deputy Treasury Secretary Lawrence Summers warned on Tuesday Asia has a "long way to go" before its economic problems can be resolved.