Asian Currencies: Peso Slides on Risk Aversion, Ringgit Climbs

By David Yong and Francisco Alcuaz Jr.

July 29 (Bloomberg) -- The Philippine peso had the biggest drop in six months, leading declines in Asian currencies, on concern investors will shun riskier emerging-market assets because of widening credit-market losses.

The International Monetary Fund yesterday said credit risks remain elevated and Merrill Lynch & Co. booked $5.7 billion of additional writedowns. South Korea's won dropped as overseas investors sold stocks, with the Kospi index declining the most in two weeks.

``Risk aversion is back'' and that is damping demand for Philippine assets, said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila. ``The credit crisis is not over yet. There are still surprises down the line.''

The peso fell 0.8 percent to 44.38 versus the dollar as of 4 p.m. in Manila, according to the Bankers Association of the Philippines. The decline was the biggest since Jan. 22. Korea's currency fell 0.3 percent to 1,008.75 in Seoul, according to Seoul Money Brokerage Services Ltd.

The peso was the worst performer today as six of the 10 most-traded currencies in Asia outside Japan fell, according to data compiled by Bloomberg. The Philippine Composite Index of stocks fell as much as 1.2 percent.

The IMF, in its Global Financial Stability Report released yesterday in Washington, stood by its April forecast for about $1 trillion in losses stemming from the U.S. mortgage crisis. While U.S. policy makers have helped contain the financial losses, ``credit risks remain elevated,'' the IMF said.

Raising Cash

Merrill yesterday said it's selling $8.5 billion of stock to investors including Singapore's state fund Temasek Holdings Pte., as well as liquidating $30.6 billion of money-losing assets at a fifth of their original value.

India's rupee fell as much as 0.6 percent to 42.785 a dollar as the Reserve Bank of India's third interest-rate increase in less than two months spurred concern growth will slow and damp demand for local assets.

The central bank lowered its growth forecast to ``around 8 percent'' for the fiscal year through March, from as much as 8.5 percent made in April.

``I'm bearish on the rupee in the near term as the central bank's inflation measures may be at the expense of growth,'' said Manoj Rane, treasurer at the Mumbai unit of BNP Paribas SA. ``Overseas investors may be reluctant to look at India and capital inflows may now be under stress.''

Stock Sales

The Korean currency extended this year's drop to 7.6 percent, Asia's second-worst performer after the Thai baht, as rising oil prices stoked inflation.

``Bids for the dollar are quite strong as U.S. credit concerns deepened, rocking confidence in stock markets globally,'' said Jay Won, a currency dealer with Korea Exchange Bank in Seoul. ``The market is expecting some demand from foreign sales of stocks.''

The Kospi stock index fell almost 2 percent today. Foreign investors have sold more Korean shares than they bought every day except three since June 1, according to Korea Exchange. Overseas investors were net sellers of $6.6 billion of Indian shares this year, compared with $17.2 billion in net purchases last year, a record high.

China's yuan climbed 0.2 percent to 6.8285 per dollar in Shanghai, according to the China Foreign Exchange Trade System, after central bank Governor Zhou Xiaochuan underscored policy ``continuity,'' spurring speculation the government will let the yuan strengthen to stem inflation.

Effective Tool

The policy fine-tuning ``only signals a change in the yuan's appreciation pace,'' said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. ``Inflation is still one of the top priorities, and currency appreciation is the most effective tool to curb imported inflation.''

Malaysia's ringgit advanced 0.1 percent to 3.2625 per dollar on speculation the central bank bought the currency to contain inflation. Consumer prices surged 7.7 percent last month, the most in 26 years.

The currency fell by the most in more than five weeks yesterday after Bank Negara Malaysia on July 25 unexpectedly kept its overnight rate at 3.5 percent, unchanged since April 2006, placing more emphasis on a slowing economy.

``Given the rate decision, the market believes there's now greater impetus to support the currency,'' said Awaluddin Shariff, a foreign-exchange trader at EON Bank Bhd. ``They wouldn't want to see the ringgit weakening too fast.''

Bank Negara will likely step up its intervention in the coming sessions because keeping the ringgit supported ``is now a priority'' to help ease inflation, Ideaglobal in Singapore said in a report to clients today. Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

Elsewhere, Vietnam's dong fell 0.1 percent to 16,790 a dollar and the Indonesian rupiah was little changed at 9,128. Thailand's baht dropped 0.1 percent to 33.50 per dollar, Singapore's dollar fell 0.3 percent to S$1.3647 and the Taiwan dollar declined to NT$30.465 from NT$30.407 on July 25.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net.