Aberdeen, Daiwa SB Sell Singapore Dollar as MAS Meets

By Lilian Karunungan

Oct. 3 (Bloomberg) -- Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling Singapore dollars on speculation the central bank will curb the currency's advance as the economy teeters on the brink of recession.

The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.

Investors are reducing their holdings in Singapore after exports fell for a fourth month in August, the number of tourists dropped the most since 2003, and the city-state's gross domestic product contracted in two of the three quarters through June. Singapore's benchmark stock index is down 33 percent in 2008, headed for its biggest annual decline so far this decade.

``I reduced exposure to the Singapore dollar,'' said Kei Katayama, a senior fund manager who heads the foreign fixed- income group in Tokyo at Daiwa SB Investments, a unit of Japan's second-largest brokerage with $4 billion in non-yen funds. ``The U.S. slowdown is spreading to Asia and Europe.''

Singapore's central bank, with about $170 billion of reserves, uses the exchange rate instead of interest rates to control monetary policy. The local dollar is allowed to trade within an undisclosed band against a basket of currencies of the city's major trading partners.

Economists See Recession

MAS policy makers opted for a one-time strengthening of the Singapore dollar at their last meeting in April, when inflation was running at a 26-year high of 7.5 percent. The rate dropped to 6.4 percent in August, easing pressure on the central bank to use currency gains to keep import costs in check.

The currency weakened 7.1 percent, to S$1.4478 per dollar as of 12:20 p.m. in Singapore, from a record high of S$1.3450 on July 16, partly reflecting the greenback's 15 percent rally against the euro and 7 percent gain versus the Malaysian ringgit. The Singapore dollar declined 6.3 percent since the central bank last met on April 10, after rising 8 percent from the previous policy decision.

Analysts predict gains will be limited. The local currency will trade at S$1.43 per U.S. dollar at the end of March, according to the median forecast of 21 estimates in a Bloomberg survey.

DBS Group Holdings Ltd. and United Overseas Bank Ltd., the nation's two-biggest lenders, said Singapore probably slipped into recession in the third quarter for the first time since 2002. The government will release advance estimates for economic growth on the same day that MAS issues its policy statement.

Zero Appreciation

Electronics account for about 29 percent of manufacturing and financial services make up 12 percent of the economy, government figures show. GDP dropped 6 percent in the second quarter from the previous three months, the statistics office said on Aug. 11.

The economic data ``makes us far less positive on the currency when taken together with the fact that inflationary pressures are easing,'' said Kenneth Akintewe, a money manager at Aberdeen Asset Management in Singapore, with $9.6 billion in Asian fixed-income assets.

The MAS may slow currency gains this month and then move to zero appreciation at its April meeting, said Thomas Harr, the senior currency strategist in the city at Standard Chartered Plc, which earns three-quarters of its profit in Asia.

The last time the central bank halted gains was in 2003 when the spread of the deadly severe acute respiratory syndrome virus, or SARS, brought the economy to a standstill and inflation slowed to less than 1 percent.

Inflation Too Fast

Inflation is too fast for the central bank to stop the advance, said Mark Tan, a Hong Kong-based economist at Goldman Sachs Group Inc.

``If you look at previous episodes when they reduced all the way to zero, inflation was running below 1 percent so it's a much different scenario right now,'' he said.

Goldman Sachs estimated in August that half of the world economy faces recession, with richer nations faring the worst.

``Singapore is more exposed because it not only has a huge financial sector, it's also a very open economy,'' said Standard Chartered's Harr.

The pain is apparent in Singapore's real estate. Home prices fell for the first time in more than four years in the third quarter. Shares of CapitaLand Ltd., the nation's largest developer, slumped to a three-year low this week.

`Prolonged Slump'

Zeng Yushan, 24, an agent at HSR Property Consultants Pte, Singapore's biggest real-estate agency, said she's struggling to find buyers for luxury apartments.

``I used to sell last year four to five properties a month,'' said Zeng. ``I can now only close one a month or none at all.''

The outlook may prompt the central bank to opt for zero currency appreciation this month, known as a neutral position, according to Kit Wei Zheng, a Singapore-based economist at Citigroup Inc.

``There's a good chance we may be entering a deeper and more prolonged slump than what many people have been expecting,'' said Kit.

Firm               October 2008 Policy         April 2009 Policy
Morgan Stanley     Lower pace of appreciation  No change
DBS                Neutral                     No change
Aberdeen           No change                   Neutral
BNP Paribas        Re-center band downwards    No change
Standard Chartered Lower pace of appreciation  Neutral
UBS                Lower pace of appreciation  Neutral
ING                Neutral                     No change
UOB                Lower pace of appreciation  No change
OCBC               Neutral                     No change
Barclays           Lower pace of appreciation  Neutral
Citibank           Neutral                     No change
Goldman Sachs      Lower pace of appreciation  Not available
Forecast Singapore Lower pace of appreciation  Neutral
Credit Suisse      Re-center band downwards    Flatten slope

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net