Asian Currencies: Won Hits 11-Year Low, Rupee Drops to Record

By Bob Chen

Feb. 27 (Bloomberg) -- Asian currencies fell today, with South Korea’s won tumbling to an 11-year low and the Indian rupee dropping to a record, on concern sliding exports and shrinking economies will deter investment.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, slumped to a four-year low as global funds favored safer bets than emerging-market assets. Government reports this week showed India’s economy expanded at the slowest pace since 2003, Singapore’s had the biggest quarterly contraction in at least 33 years, and Hong Kong’s exports fell the most in half a century.

“The degree of downturn in Asian economies has been surprisingly substantial,” said Tomo Kinoshita, an economist at Nomura Holdings Inc. in Hong Kong. “That has probably upset the investors of equity and fixed income, which certainly helped to depreciate the currencies.”

The won fell 1.1 percent to 1,534 against the dollar as of 3 p.m. local time, according to Seoul Money Brokerage Services Ltd. It reached 1,544, the weakest since March 1998. India’s rupee declined as much as 1 percent to 50.975, and was headed for a 3.8 percent monthly drop.

Asian governments are increasing spending and central banks have slashed interest rates to help revive economies suffering from declining demand for exports as a global recession deepens.

‘Long Dollar’

Eight of the 10 most-active Asian currencies dropped against the dollar this month as investors favored safer bets than emerging markets. China’s yuan gained and Hong Kong’s dollar, which is pegged to the greenback, was little changed.

The MSCI Asia Pacific Index of regional shares slid 9.2 percent this month, taking its loss for the year to 16 percent. The benchmark plunged 43 percent in 2008.

India’s economy, Asia’s third largest, expanded 5.3 percent from a year earlier in the last quarter, the government said today. Singapore’s gross domestic product declined an annualized 16 percent during the three-month period and Hong Kong’s exports in January tumbled 22 percent, separate reports showed.

“Everyone is long the dollar,” said Paul Joseph Garcia, who helps oversee $1.19 billion as chief investment officer at the Manila unit of ING Investment Management Ltd. “If you look at Asian exports, it looks like they’re falling by half.” Long positions are bets that a currency will rise.

Indonesia’s rupiah fell 0.1 percent today to 11,985 per dollar, posting a monthly drop of 4.5 percent, according to data compiled by Bloomberg. Taiwan’s dollar dropped as low as NT$35.008, the weakest since April 2003, according to Taipei Forex Inc.

Korean Measures

South Korea’s won plunged more than 18 percent this year on concern sliding exports will curb the supply of dollars and hinder the ability of local banks and companies to repay overseas debt.

The government will exempt overseas investors from taxes on interest earned on their holdings of domestic bonds to spur foreign investment and boost inflows of dollars, the Finance Ministry said yesterday. The nation posted its first current- account deficit in four months in January.

“They are trying to cover all bases, which is the prudent thing to do, but that does not alleviate market concerns that there may be foreign currency liquidity issues over the next few months,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “Given the impact that this has on the won in 2008, you’d be foolish as an investor to ignore it.”

Junk Rating Risk

India’s rupee fell for a second week and offshore forward contracts showed traders increased bets for the currency to extend losses after Standard & Poor’s lowered its outlook on the nation’s credit rating, heralding a possible cut to non- investment grade, or junk.

India’s spending plans to help shield the economy from the global recession are “not sustainable,” S&P said on Feb. 24. Exports may fall short of the government’s target of $200 billion in the year to March 31, Trade Minister Kamal Nath said yesterday.

“The rupee is now under increased pressure following the rating outlook cut,” said Krishnamurthy Harihar, treasurer at Development Credit Bank Ltd. in Mumbai. “There’s a decent possibility of an actual rating downgrade in the near future and that’ll fuel capital outflows.”

‘Risk Aversion’

Indonesia’s rupiah had a seventh weekly decline, the longest losing streak since November 2007.

“This is purely risk aversion,” said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore. “There is also month-end corporate dollar demand that is pushing the rupiah down.”

Taiwan’s dollar dropped 0.3 percent to NT$34.95 versus the greenback, capping a 3.3 percent drop for the month. Malaysia’s ringgit declined 2.6 percent this month and today reached 3.7065 per dollar, the lowest since March 2006.

Thailand’s baht sank to a two-year low of 36.17 per dollar today, having lost 3.4 percent this month. The Philippine peso slid 2.9 percent to 48.798. China’s yuan was little changed for the month at 6.8398.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net