Stock market sell-off drags Asian monies down

Stock market sell-off drags Asian monies down

HONG KONG (Dow Jones): The New Year rally in Asian currencies reversed sharply on Wednesday, as steep falls in regional stock markets triggered a sell-off in local currencies around Asia.

But although domestic currencies dropped sharply in foreign exchange markets from Seoul to Jakarta, the extent of their falls was limited as institutional investors stuck to their bullish view of the region and stepped in to buy Asian currencies at their lows.

In Southeast Asia, both the Thai baht and the Singapore dollar opened down steeply as market players rushed to cover short U.S. dollar positions established on Tuesday, afraid the overnight fall in U.S. equities would be mirrored in local stock markets.

Sure enough, the stock markets in each center tumbled by around 5%, but the foreign exchange markets proved more resilient as the U.S. dollar soon topped out in response to renewed selling interest against both the Thai and Singapore currencies.

"The dollar was not even able to hang on to today's highs against the baht and the Sing (Singapore dollar)," said the head of trading at one major European bank in Singapore. "That shows there are genuine dollar inflows into these countries."

Traders attributed the inflows to international portfolio managers allocating assets to regional markets in the belief that Wednesday's sell-off would prove no more than a temporary setback.

"Some equity funds are taking the opportunity to sell dollars into the rally and buy into the regional currencies. With the correction, this is not a bad level to get in," explained a Singapore-based regional currencies trader at one large U.S. bank.

Against the baht, the dollar initially shot to a high of 37.4900 baht, over 1.5 percent above the five month low of 36.8500 baht seen late Tuesday.

Toward the end of Asian trading, however, interest to sell dollars had driven the U.S. currency back down to end local hours at 37.2500 baht.

Trading in the Singapore dollar followed a similar pattern, with the U.S. currency rising to an early high of S$1.6578, before easing back to S$1.6565 late in Asian dealings. Late the day before, the U.S. dollar had been quoted at S$1.6505.

In North Asia, the South Korean won also dropped sharply from the start of trading in Seoul as traders hastened to cover their short positions in the U.S. currency.

Dollar purchases executed by state banks added to the momentum of the U.S. currency's advance, according to local dealers, propelling the dollar upward to close at an intraday high of 1,135.00 won, up from 1,122.50 won at Tuesday's close.

Even so, won buying interest didn't evaporate completely, with traders saying foreign portfolio managers remain poised to invest in South Korea.

"If the stock market stabilizes tomorrow, offshore funds will start to buy the won again," said a dealer at one U.S. bank in Seoul.

Among other Asian currencies, the Indonesian rupiah fell heavily, in line with the regional trend. Despite domestic political worries, however, interest to buy the local currency soon emerged, capping the U.S. dollar above Rp 7,200.

Late in Asia, the U.S. dollar was quoted at Rp 7,155, up from Rp 7,045 Tuesday.

The Philippine peso also fell heavily, with the dollar rising to close at a high of 40.165 pesos, up from 39.770 pesos the previous day.

The new Taiwan dollar also closed lower. But with sentiment toward the Taipei stock market still strong, the fall in the Taiwanese currency was attributed more to U.S. dollar buying by the central bank than to the covering of U.S. dollar shorts by market players.

At the close, the U.S. dollar was quoted at NT$30.800, up from NT$30.602 at the end of Tuesday's session.