Asian Currencies Set for Weekly Loss as Recession Concerns Grow

By Anil Varma and Kim Kyoungwha

Oct. 24 (Bloomberg) -- Asian currencies headed for a weekly decline, led by South Korea's won and Taiwan's dollar, as stocks slumped on concern a global recession will damp demand for the region's exports.

The won headed for its sixth weekly decline as a central bank report showed Asia's fourth-largest economy grew at the slowest pace in four years last quarter. Korea's economy is slowing ``faster than expected'' and growth for 2008 will fall short of the bank's forecast of 4.6 percent, Choi Chun Sin, director general of the Bank of Korea's economics statistics department, said today.

``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 slumped 7.2 percent this week to 1,437.95 per dollar, near the lowest level in a decade, as of 1:21 p.m. local time, according to Seoul Money Brokerage Services Ltd. Nine of the 10 most-active Asian currencies fell this week, according to data compiled by Bloomberg.

Korea's currency extended its loss this year to 35 percent, Asia's worst performer. The Kospi stock index lost 19 percent this week as overseas funds sold more of the nation's shares than they bought for an eighth day, according to Korea Exchange. Gross domestic product rose 0.6 percent in the third quarter from the previous three months, when it increased 0.8 percent, the central bank said in Seoul today.

Investors Exit

Investors are fleeing emerging-market assets as a credit crisis, stemming from home-loan defaults in the U.S., threatens to drag the global economy into recession. The MSCI Asia-Pacific Index of shares declined 4.3 percent today after Sony Corp. cut its earnings estimates and South Korea's economic growth slowed. Japan's Nikkei 225 Stock Average slipped 6.5 percent.

The yen climbed to a 13-year high 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 Japanese currency.

The yen also jumped against 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.

Faster Than Expected

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

The yen rose to 95.45 per dollar, the highest level since 93.28 on Aug. 15, 1995, and traded at 96.04 from 97.31 late yesterday in New York. Against the euro, it climbed to 122.69 from 125.89. The euro bought $1.2777 from $1.2934.

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

The currency fell for an eighth day, 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 of U.S. currency yesterday to help slow the local dollar's decline, the Commercial Times reported today, citing unidentified traders.

`It's a Contagion'

``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 has slumped 2.6 percent this week to NT$33.40 against the U.S. dollar, the heading for the biggest five-day loss since the period ended Jan. 10, 1998, according to Taipei Forex Inc. The local dollar lost 0.3 percent today.

The Philippine peso fell, heading for a fifth weekly decline, as manufacturers bought fewer electronic parts for a sixth month in August, suggesting exports of laptops and mobile- phone chips will extend declines. Exports make up about 40 percent of the Philippine economy.

``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.''

`A Troubling Sign'

The peso lost 0.2 percent to 48.94 per dollar, according to Tullett Prebon Plc. It has lost 1.8 percent this week and is trading near the lowest level in 19 months.

Indonesia's rupiah was poised for a weekly loss on speculation investors sold the nation's assets as Asian stocks fell for a third day. The currency has dropped 4.1 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 probably try to stem the weakness in the rupiah from going beyond 10,000.''

The rupiah fell 1.9 percent this week to 9,999 per dollar, according to data compiled by Bloomberg. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Elsewhere, the Thai baht fell 1.2 percent versus the dollar this week to 34.69, and the Singapore dollar dropped 1.6 percent to S$1.5060. 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 2309 or kkim19@bloomberg.net.