Indonesian Rupiah, Philippine Peso to Outperform, JPMorgan Says

By Patricia Lui

Aug. 12 (Bloomberg) -- Indonesia's rupiah and the Philippine peso will outperform the currencies of Singapore, Taiwan and Malaysia in the second half of the year, according to JPMorgan Chase & Co.

Prospects for slower inflation may make Indonesian and Philippine bond yields attractive to overseas investors and domestic demand will help shield them from a global slowdown, according to the third-biggest U.S. bank. By contrast, slower export growth in Malaysia, Singapore and Taiwan will make their currencies the worst performers in the second half of 2008, according to JPMorgan.

A recovery in the U.S. dollar, estimates for slower Asian growth and the central banks' preference for weaker currencies to help revive their economies prompted JPMorgan to cut its forecasts for Singapore and Taiwan's dollars as well as the Malaysian ringgit, the bank's strategists, Claudio Piron and Yen Ping Ho, wrote in a research note today.

``Asian currency weakness in the second half of the year will be focused on the very open industrialized economies of the won, Taiwan and Singapore dollars and Malaysia's ringgit as the electronics cycle takes the brunt of the slowdown in major economies,'' the analysts wrote.

The Indonesian rupiah may strengthen 2 percent to 9,000 against the dollar, JPMorgan forecast. The currency traded at 9,183 as of 2 p.m. in Jakarta, according to data compiled by Bloomberg.

Top Performers

The Philippine peso and the rupiah are among the four top performers of the 10 most-active Asian currencies outside Japan so far in the second half of 2008, Bloomberg data show, as the central banks raised interest rates to fight inflation.

The ``rupiah and peso are expected to outperform Asian currencies due to their domestic demand-driven economies and improving real yields on falling inflation, attracting portfolio inflows,'' Singapore-based Piron and Ho wrote.

Singapore's exports may decline as much as 4 percent this year, the government said yesterday, compared with earlier forecasts for growth of as little as 2 percent. The government last week cut its 2008 growth forecast for a second time this year. The city-state's dollar has retreated 4.7 percent after touching an all-time high of S$1.3450 versus the U.S. currency on July 16.

The local currency, which is the worst performer in the region this month, may extend losses to S$1.43 by year-end, JPMorgan forecast. It last traded at $1.4119, according to data compiled by Bloomberg.

Slowing Exports

Taiwan's dollar declined yesterday to the weakest level in more than five months as the island reported its first trade deficit since February 2006 and export growth slowed to 8 percent in July from 21 percent the previous month.

Malaysia's ringgit fell for an eighth day, the longest losing streak since a peg to the dollar was scrapped in July 2005, as the trade ministry last month cut its forecast for export growth this year to 6 percent from an earlier estimate of 7 percent. Industrial production grew at the slowest pace in 10 months in June, a report showed yesterday.

The ringgit, trading at 3.3360 a dollar, will fall to 3.3800 by year-end, and Taiwan's dollar, trading at NT$31.165, will decline to NT$32.80, the bank said in its note.

``Asian currencies are expected to resume their broad appreciation trend in the first quarter of 2009 when growth expectations recover,'' the research report said.

South Korea's won will remain weak in 2009 due to ``deterioration'' in the balance of payments and exporters who ``overhedged'' by selling dollars in advance, Piron and Ho wrote, predicting the won will fall to 1,050 a dollar by year- end and to 1,100 by end-2009. The currency last traded at 1,034.50, according to Seoul Money Brokerage Services Ltd.

To contact the report on this story: Patricia Lui in Singapore at plui4@bloomberg.net