Weaker monies benefit SE Asia in long term
Weaker monies benefit SE Asia in long term
HONG KONG (Reuter): Depreciation in Southeast Asian currencies will benefit the region in the long-term, providing investors with a more accurate return on their investments, fund managers said.
"In the long run, it's a good thing," said Eugene Chung, regional strategist at SBC Warburg.
"If companies are going to start to be investing their capital more prudently, then we can expect a higher return on that capital, we can expect higher earnings and, therefore, better growth in the long term."
Chung said the cost of capital in Southeast Asia had become mispriced, with markets under-estimating the region's risk and over-estimating its growth potential. The current correction will strengthen Southeast Asia's investment potential as the risk is more accurately priced in, he said.
Daniel Hemmant, currency fund manager for Guinness Flight Asia, said the region had become a victim of its own success.
"As with other emerging markets, Southeast Asia in the past has been subject to a lot of hype. That's certainly been justified because its economic performance has been exceptional, but inevitably it gets overblown," he said.
The Thai baht has shed 25 percent of its value since July 2 amid concern about the country's ability to service bad loans built up by banks and finance companies, who lent liberally to an inflated property sector.
Much of the lending was short-term and made in foreign currency, exposing the financial sector to yet more pain as the baht slides.
Although other Southeast Asian nations fell victim to currency speculation as the Thai baht sank, analysts said economic comparisons between Thailand and other nations were largely unfair.
Economists said the Indonesian currency against the dollar will not take the wind out of the economy's sails, with inflation seen remaining within government targets.
"I don't think the impact will be massive," said Daragh Maher, an economist with ING Barings in Singapore.
"On the corporate level, you may see certain companies feeling the pinch because of higher import bills, but on the macro level I don't think it will come to that much."
The rupiah, which started the year at 2,363 to the dollar, had fallen more than 10 percent by Friday's close to about 2,605.
Many Southeast Asian economies feature current account deficits, a decline in exports and asset price inflation in their property sectors, but few are as exposed as Thailand to foreign debt, said Bank of America.
The bank said of Thailand's external debt of US$90.3 billion, $31.5 billion was made up of the Bangkok International Banking Facility.
This system allowed certain banks in Bangkok to borrow cheap U.S. dollars and lend in baht, which carried much higher interest. The fixed exchange rate protected the banks from currency loss when they switched out.
All the debt is short-term, and most of it is denominated in U.S. dollars. No other Southeast Asian nation is similarly exposed, although the Philippines, Indonesia and Malaysia have been hounded by currency speculation in Thailand's wake.
The Philippines, whose currency has depreciated to 28.5 to the U.S. dollar compared to 26 before flotation on July 11, is nowhere similar to Thailand, Bank of America said.
Exports are growing by 22.8 percent in the first five months of this year, while the current account deficit is among the best in Asia at 4.1 percent of gross domestic product.
Hemmant said any further weakness in the baht is bound to ignite further contagion throughout the rest of the region, regardless of economic fundamentals.
While cheaper currencies and more accurate valuations will improve the region's competitiveness over the longer-term, Southeast Asia can expect to suffer from an image problem in the short-term, said Merrill Lynch chief economist Nicholas Kwan.
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