Weaker dollar may boost Asian exports

Weaker dollar may boost Asian exports

SINGAPORE (AFP): The prolonged weakness of the U.S. dollar is
making Asia's exports more competitive and drawing more direct
foreign investment to the region, British brokerage Crosby
Securities said yesterday.

But other analysts say Asian manufacturers, most targeting the
U.S. market, could suffer a competitive disadvantage, although
the greenback's fall had at least temporarily arrested fears of
inflation spreading to the region.

"In general, U.S. dollar weakness benefits Asia's economies
strongly through increased currency competitiveness for exports
and heightened attractiveness to foreign investors," Crosby said
in its latest Asian quarterly economic review.

Crosby's assessment was based on the impact the recent decline
in the U.S. dollar would have on the real effective exchange
rates (REER) of the region's currencies.

It said studies showed that exports in seven Asian countries
responded strongly to changes in REER, a trade-weighted exchange
rate index, influenced mainly by short-term U.S. dollar
movements.

The studies covered China, Hong Kong, Singapore, Malaysia,
Thailand, Indonesia and the Philippines.

Crosby said that the increased competitiveness of Asian
currencies combined with accelerating world trade and renewed
demand in industrial nations would bolster Asian exports in the
12 months from June this year.

Chan Kok Peng, an economist with British investment house
Smith New Court (S) Pte. Ltd., however, believes that the REER
was not a "fool-proof" method of gauging Asia's export
competitiveness.

Factors

"It all depends on what key economic factors are used against
the index. For instance studies have shown that using consumer
price index and unit labor costs separately could give different
results," Chan said.

But Chan agreed that the U.S. dollar would continue to be weak
in the long-run.

"I cannot see how the greenback can strengthen given that the
U.S. trade position is still weak while domestic demand is
increasing on the back of increasing imports," he said.

The United States and Europe are the two largest export
markets for most Southeast Asian economies.

Because these economies manage their currencies against the
U.S. dollar their external accounts are directly geared to the
greenback's movements, analysts say.

Almost all of Hong Kong and Singapore exports to the United
States and Europe comprise manufactured goods against 74 percent
for Malaysia and 40 percent for Indonesia.

Crosby said that Southeast Asia was already gaining from the
fall in the U.S. dollar, which was drawing more direct
investments to the region.

Besides the declining dollar, Asia's other pluses included
greater stability of input costs, currency movements and rapid
deregulation.

Bruce Rolph, head of research at Salomon Brothers Singapore
Pte Ltd., said generalizations about Asia's export
competitiveness in relation to the U.S. dollar could be
dangerous.

"A weakening U.S. dollar increases the import cost of Asian
goods into the U.S., whose exports would be cheaper. As such,
regional manufacturers destined for the American market would
suffer a competitive disadvantage," he said.