By Lilian Karunungan
July 7 (Bloomberg) -- HSBC Private Bank, which manages $494 billion of client's assets, favors the Chinese yuan, the Malaysian ringgit and the Indonesian rupiah as rising export revenue bolsters their economies and attracts foreign investment.
The yuan will advance 8.4 percent to 6.33 per dollar in the next 12 months as the central bank seeks a stronger currency to curb inflation, Arjuna Mahendran, head of Asia investment strategy at HSBC Private Bank in Singapore, said in an interview. His forecast is more bullish than the median in a Bloomberg survey of analysts. The Malaysian and Indonesian currencies may gain 2 to 3 percent because price gains for commodities including palm oil will boost export revenue, he said.
``I'm fairly confident that they'll keep moving up against the dollar because of capital flows,'' he said. ``Stronger countries, like China, Singapore, Malaysia and eventually Indonesia, if they can control inflation, will surge ahead.''
The yuan and the rupiah are the best-performing in the past month among Asia's 10 most-active currencies outside of Japan. The yuan traded at 6.856 per dollar at 11:34 p.m. in Shanghai and has gained 21 percent since the central bank ended a dollar peg two years ago as increased exports drove the trade surplus to a record. The ringgit was at 3.2655 and the rupiah at 9,213.
The median estimate of 25 economists is for the yuan to reach 6.46 in the second quarter of 2009. The ringgit is expected to gain about 4 percent and the rupiah to advance more than 2 percent, according to separate surveys of 22 economists.
Interest, Exchange Rates
China's foreign-exchange reserves have swelled to $1.68 trillion, a quarter of the amount held by central banks worldwide, as investors bought Chinese stocks and property.
China's central bank will seek currency appreciation to curb import prices and ``will raise rates at some point,'' Mahendran said July 3. China and Indonesia increased fuel prices in the past two months to reduce subsidies that have become costlier because of soaring international crude oil prices.
Central banks around the region are boosting borrowing costs or bolstering exchange rates to cool consumer price growth that's accelerating after oil and food prices jumped to records. China's inflation probably slowed in June for a second month, after reaching the fastest in almost 12 years in April.
Indonesia on July 3 boosted borrowing costs for the third month in a row as inflation reached 11 percent in June, the most in 21 months. Malaysia's Bank Negara has kept its overnight policy rate at 3.5 percent, spurring speculation the central bank has been buying ringgit to stem consumer price gains.
Malaysia, Southeast Asia's largest oil and gas exporter and the world's No. 2 palm oil seller, is benefiting from surging commodity prices. Crude oil in New York reached a record $145.85 a barrel on July 3 and palm oil has climbed 19 percent this year.
Export Growth
Indonesia is the world's biggest producer of palm oil and the largest thermal coal exporter. Its total sales abroad increased 31 percent in May from a year earlier, swelling the trade balance to $3.2 billion, double the amount in April, the government said last week.
Malaysia's overseas sales rose 22 percent in May from a year earlier to 60.6 billion ringgit ($18.6 billion), the Trade Ministry said last week. Malaysia had a current-account surplus of $23.8 billion in March, near the widest since 1999.
The ringgit dropped to a five-month low last week amid calls for Prime Minister Abdullah Ahmad Badawi to resign. Malaysian police in the past week confirmed investigations of Deputy Prime Minister Najib Razak and former Deputy Prime Minister Anwar Ibrahim. Both have called claims against them fabrications intended to destroy their political careers.
Political Risks
``You will have to wait for next year to see the upside'' in the ringgit, Mahendran said. ``Malaysia has a current account surplus. Despite the political uncertainties, the basic structure of the economy is quite strong.''
Indonesia's currency posted its first monthly gain since February in June as the central bank sold dollars and raised its benchmark rate three times this year, boosting investor confidence. Foreign-exchange reserves were at a record $59.5 billion in June.
``They have very adequate foreign currency reserves so they can defend the rupiah,'' Mahendran said. ``And I think Bank Indonesia has to raise rates again in the second half of this year.''
He forecast Indonesia will increase its borrowing benchmark by another half a percentage point by year's end to 9.25 percent.
The rupiah will also gain as oil prices may soon reach their peak, Mahendran said. Indonesia's aging oil fields and declining production have forced Southeast Asia's largest economy to import about a third of its oil needs. Its government subsidizes the fuel to make it affordable to many consumers.
``I see oil prices peaking at $150 in the next three months and then I think they'll move down to just above $100 because of demand destruction,'' Mahendran said.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
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