Asia Currencies Set for Monthly Drop as Funds Dump Local Assets

By Aaron Pan and Kim Kyoungwha

Aug. 29 (Bloomberg) -- Asian currencies headed for monthly losses, led by South Korea's won, as overseas funds dumped stocks on concern that slowing global growth will damp demand for Asian exports just as central banks grapple with quickening inflation.

The won was set for its biggest monthly decline since August 1998, Malaysia's ringgit headed for the worst month since the end of a dollar link in 2005 and Taiwan's dollar was poised for its biggest loss in seven years. Weakening currencies threaten to push up the cost of imports and accelerate inflation while decreasing demand for exports puts pressure on trade and current- account balances.

``It's been a bad environment for stocks with persistent inflation eroding the value of assets and people have been disappointed with the growth numbers coming out of the region,'' said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. ``With that comes a fading of confidence in currencies in the region as well.''

South Korea's currency dropped 0.5 percent to 1,087.35 against the dollar as of 1:56 p.m. local time, according to Seoul Money Brokerage Services Ltd., taking the decline in August to 6.9 percent, Asia's worst performer. The ringgit, the second- biggest loser in the region, fell 4 percent this month and Taiwan's dollar 2.6 percent.

Overseas investors sold more stocks than they bought this month in Korea, Thailand, the Philippines, Taiwan and Indonesia, according to data compiled by Bloomberg. Global funds were so- called net sellers of Korean shares today for a ninth day, stock exchange data showed.

Korea Intervention

Korea's central bank said today that the current-account balance returned to a deficit in July as a weaker currency and rising oil prices increased the import bill. Policy makers have intervened in the market to curb losses in the currency, depleting the nation's foreign-exchange reserves.

Attempts by officials to halt the won's slide failed to keep the currency from reaching its lowest since 2004, said Kim Sung Soon, a dealer at Industrial Bank of Korea in Seoul.

``Demand for the dollar from foreign stock sales and importers is still high,'' Kim said. ``The market is on the lookout for the government's intervention.''

Central banks intervene in the currency market by buying or selling foreign exchange.

Malaysia's ringgit fell to near the lowest in 11 months on speculation heightened political turmoil will prompt investors to sell the country's stocks.

Malaysia Politics

The currency weakened this week, extending a monthly slump. The Kuala Lumpur Composite Index of shares dropped 6.6 percent in August for a fourth monthly decline. Malaysia doesn't reveal numbers on stocks transactions by foreigners.

The ringgit traded at 3.3913 per dollar versus 3.3400 a week ago, according to data compiled by Bloomberg. It reached 3.3975 on Aug. 27, the weakest since October.

Opposition leader Anwar Ibrahim was yesterday sworn in as a lawmaker after winning a by-election on Aug. 26. He has said defections from ruling lawmakers will unseat Prime Minister Abdullah Ahmad Badawi's government by Sept. 16.

Abdullah will present the 2009 Budget in parliament at 4 p.m. today. Second Finance Minister Mohamed Yakcop said on Aug. 4 the government won't achieve its target of narrowing its fiscal deficit to 3.2 percent of gross domestic product.

``There are crosswinds in the ringgit market because the political risks could turn for the worse in September,'' said Goh Puay Yeong, a currency strategist at Barclays Capital Plc in Singapore. ``Sentiment is weak and economic policies could come to a standstill'' amid a power struggle, he said.

Thai Protests

Malaysia's second-quarter GDP expanded 6 percent, the slowest in a year, according to the median forecast in a Bloomberg News survey before Bank Negara Malaysia reports the figure at 6 p.m. in Kuala Lumpur. The economy expanded 7.1 percent in the first quarter.

Thailand's baht dropped, headed for a sixth month of losses. The currency fell as oil climbed for a second week and protesters led by opposition leaders occupied the office of Prime Minister Samak Sundavarej in Bangkok for a fourth day to force his resignation.

A government report today may show the nation posted a current-account deficit in July. Inflation accelerated to 9.2 percent last month, the fastest pace since 1998.

``Investment sentiment is not very good and stock sales by foreigners are huge,'' said Sukkawat Prasurtying, chief investment officer in Bangkok at Manulife Asset Management (Thailand) Co. Ltd. ``That contributes to the baht weakness.''

The baht fell 0.3 percent to 34.15, according to data compiled by Bloomberg. The currency has declined 1.9 percent in August, reaching 34.29 on Aug. 26, the lowest since September 2007.

Cooling Economies

Taiwan's dollar fell on concern that cooling demand in the U.S. and Europe will hurt the island's exports.

The local currency was set for a sixth weekly decline, the longest losing streak in more than a year, after the government cut its economic growth forecast and reported the smallest increase in export orders in five years. Taiwan's economy is forecast to expand 4.3 percent this year, which would be the slowest expansion since 2003.

``It's a rotation of risk,'' said Jimmy Koh, head of economic treasury research at United Overseas Bank Ltd. in Singapore. ``Over the last six months the rest of the world was holding up pretty well, but is now feeling the pinch on the U.S. front, as reflected in their export numbers. You're seeing that in Singapore, Korea, and Taiwan.''

Dollar Rebound

The Taiwan dollar declined 0.2 percent to NT$31.527 per U.S. dollar, according to Taipei Forex Inc. The currency, which touched a six-month low of NT$31.571 on Aug. 26, has dropped 0.5 percent this week and 2.6 percent since the end of July.

Elsewhere, Singapore's dollar lost 3.4 percent this month, and Indonesia's rupiah dropped 0.6 percent. The Philippine peso declined 3.8 percent. Vietnam's dong has gained 1.3 percent since the end of July. The dollar climbed 5.8 percent versus the euro and 1.1 percent against the yen in August, extending a rally.

``We've seen a rebound in the dollar, while political risks and inflation pressures have led to investors losing confidence in stocks and currencies in the region,'' said Carol Chan, a currency analyst at CFC Seymour Ltd. in Hong Kong. ``This trend will continue and that's not good news for Asian currencies.''

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.