Asian Currencies Decline in Month as Funds Dump Local Assets

By Aaron Pan and Kim Kyoungwha

Aug. 30 (Bloomberg) -- Asian currencies declined this month, 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 posted its biggest monthly decline since August 1998, Malaysia's ringgit had its worst month since the end of a dollar link in 2005 and Taiwan's dollar posted 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 0.7 percent to 1,089 against the dollar as of the 3 p.m. local close yesterday, according to Seoul Money Brokerage Services Ltd., taking the decline in August to 7.1 percent, Asia's worst performer. The ringgit, the second-biggest loser in the region, fell 4.1 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 yesterday for a ninth day, stock exchange data showed.

Korea Intervention

Korea's central bank said yesterday 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 declined this week, extending a monthly slump. The Kuala Lumpur Composite Index of shares dropped 6.2 percent in August for a fourth month of losses. Malaysia doesn't reveal numbers on stocks transactions by foreigners.

The ringgit traded at 3.3935 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 sworn in as a lawmaker on Aug. 28 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.

Second Finance Minister Nor 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

Thailand's baht dropped, posting 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 Sundaravej in Bangkok to force his resignation.

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

The baht fell 0.5 percent yesterday to 34.20, according to data compiled by Bloomberg. The currency has declined 2.1 percent in August, reaching 34.29 on Aug. 26, the lowest since September 2007.

Taiwan's dollar fell on concern that cooling demand in the U.S. and Europe will hurt the island's exports, which account for half of the gross domestic product. The government cut its economic growth forecast and reported the smallest increase in export orders in five years.

The Taiwan dollar declined 0.1 percent to NT$31.520 per U.S. dollar yesterday, 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 gained 1.4 percent in August.

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