Asian Currencies Drop in Week, Led by Won, on Recession Concern

By Anil Varma and Kim Kyoungwha

Oct. 25 (Bloomberg) -- Asian currencies slumped this week, led by South Korea's won and Indonesia's rupiah, as stocks slid on concern a global recession will damp demand for the region's exports.

The won had a sixth weekly decline as the central bank said Asia's fourth-largest economy grew 0.6 percent last quarter, the slowest pace in four years. Choi Chun Sin, director general of the Bank of Korea's statistics department, said yesterday growth is slowing ``faster than expected'' and will fall short of the bank's forecast of 4.6 percent for 2008. Nine of the 10 most- active Asian currencies Bloomberg tracks fell this week.

``Sentiment is really fragile,'' said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul. ``The foreign exchange is being easily swayed by any bad news in a market whose volume shrank sharply of late.''

The won dropped 6.3 percent this week to close at 1,424 per dollar in Seoul, near the lowest level in a decade, according to Seoul Money Brokerage Services Ltd. The rupiah touched 10,315 a dollar, the weakest since October 2005.

The South Korean currency extended its loss this year to 35 percent, making it Asia's worst performer. The Kospi stock index lost 20.5 percent this week as overseas funds sold more of the nation's shares than they bought for an eighth day, according to Korea Exchange.

The MSCI Asia-Pacific Index of shares dropped 5 percent yesterday after Sony Corp. cut its earnings estimates and Korea's economic growth slowed. Japan's Nikkei 225 Stock Average plunged 9.6 percent.

Carry Trades

The yen climbed to a 13-year high yesterday against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher- yielding assets with the Japanese currency. The dollar rose to a two-year high versus the euro.

The yen also surged to the strongest in six years versus the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard & Poor's Ratings Services yesterday threatened to cut Russia's debt ratings.

``I can't rule out the scenario where the yen rises even faster than anticipated,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital. ``Speculators are unwinding carry trades. This risk aversion is coming from the credit crunch and the chance of a global recession.''

The yen rose as high as 90.93 per dollar, the highest level since August 1995, before trading at 93.29 yesterday. Against the euro, it climbed to 113.81 yen before trading at 118.66 yen versus 125.89 yen. The euro bought $1.2703 from $1.2934.

`Bad Sentiment'

Indonesia's rupiah rounded off a weekly loss on speculation investors sold the nation's assets. The currency has dropped 6.8 percent this month as the central bank was forced to rescue its Dutch commercial banking unit to prevent the collapse of the lender from affecting its credibility.

``It's a story of bad sentiment'' locally and in other emerging markets, said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore.

Bank Indonesia will intervene although it can't defy ``big'' capital outflows, Governor Boediono said yesterday. Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

The rupiah fell 4.1 percent this week to 10,225 per dollar in Jakarta, according to data compiled by Bloomberg.

Taiwan's dollar completed its biggest weekly loss in 10 years after a government report showed the export outlook worsened more than economists expected last month.

`Contagion'

The currency fell for an eighth day yesterday, the longest losing streak since August, after the Ministry of Economic Affairs said export orders grew at the slowest pace in six years in September as demand from the U.S. and China cooled. The central bank sold about $500 million on Oct. 23 to help slow the local dollar's loss, the Commercial Times reported yesterday, citing traders it didn't identify.

``Taiwan is very exposed to the rest of the world,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. ``Obviously the central bank is slowing the move somewhat but it's a contagion.''

The island's currency slumped 2.65 percent this week to NT$33.412 against the U.S. dollar, the biggest five-day loss since the period ended Jan. 10, 1998, according to Taipei Forex Inc. The local dollar lost 0.4 percent yesterday.

India's rupee fell for an 11th week after the central bank cut the economic growth outlook for the year ending March 31 to as little as 7.5 percent from an earlier estimate of 8 percent.

The currency slid as much as 0.7 percent to 50.165 per dollar, an all-time low, before closing at 49.985 in Mumbai yesterday, data compiled by Bloomberg show. The currency has lost more than 21 percent this year and is headed for its worst year since 1991.

`Troubling Sign'

The Philippine peso fell for a fifth week as manufacturers bought fewer electronic parts for a sixth month in August, suggesting exports of laptops and mobile-phone chips will extend declines.

``The continued drop in electronics imports is symptomatic of the weakening global demand and a troubling sign that exports will slow,'' said David Cohen, an economist with Action Economics in Singapore. ``In this environment, the peso will remain under pressure.''

The peso lost 1.9 percent in the week to close at 48.991 per dollar in Manila, according to Bankers Association of the Philippines. Exports make up about 40 percent of the Philippine economy.

Elsewhere, the Thai baht fell 1.3 percent versus the dollar this week to 34.70 and the Singapore dollar dropped 1.9 percent to S$1.5105. Vietnam's dong weakened 1.5 percent to 16,848.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.