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

By Bob Chen

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

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, touched the lowest level in three years as overseas investors cut holdings of emerging-market assets. Government reports this week showed Taiwan’s unemployment rate rose to a seven-year high, Hong Kong’s exports plunged by the most since 1958, and Singapore’s economy had the biggest quarterly contraction in at least 33 years.

“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 dropped 0.3 percent today to 1,521.25 per dollar as of 1:41 p.m. local time, for a monthly loss of 9 percent, the worst performance in the region, according to Seoul Money Brokerage Services Ltd. It reached 1,524.50, near November’s 11- year low of 1,525. India’s rupee declined as much as 0.6 percent to 50.77, and was down 3.4 percent in February.

Asian governments are increasing spending and central banks have slashed interest rates to help revive economies suffering from declining demand for exports as the 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. The MSCI Asia Pacific Index of regional shares fell 7.2 percent in February, taking the loss this year to 16 percent. The gauge declined 43 percent in 2008.

Government reports today will show Malaysia’s and India’s economies expanded at the slowest pace in at least four years last quarter, according to economists in Bloomberg News surveys.

“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 0.7 percent today to 12,055 per dollar, headed for a monthly drop of 5 percent, according to data compiled by Bloomberg. Taiwan’s dollar dropped as low as NT$34.945, the weakest since April 2003, according to Taipei Forex Inc.

Korean Measures

South Korea’s won plunged more than 17 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.”

Capital outflows from South Korea are unlikely this year, Vice Finance Minister Hur Kyung Wook said at a briefing yesterday. The won will see continued volatility for now, the Financial Services Commission said.

India Outlook Cut

The country is headed for its first recession since the 1997-1998 Asian financial crisis. The Bank of Korea reduced its benchmark interest rate to a record low of 2 percent this month and Governor Lee Seong Tae said there’s room for another cut.

India’s rupee headed for a second weekly loss and offshore forward contracts showed traders increased bets for the currency to extend losses after Standard & Poor’s cut the nation’s credit rating outlook to negative.

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 is poised for a seventh weekly decline, the longest losing streak since November 2007. Southeast Asia’s biggest economy sold $3 billion of bonds in the largest fundraising by a developing nation this year to finance the budget deficit.

“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 3.8 percent this month, the third- worst performance among the 10 most-active Asian currencies outside Japan.

The statistics bureau said yesterday the jobless rate climbed to 5.33 percent, more than economists forecast in a Bloomberg News survey. Export orders, an indicator of shipments in the next one to three months, fell by a record last month and overseas sales also posted the biggest-ever drop.

China’s economy will rebound around April, with the other Asian countries following suit in the second half of the year, Nomura’s Kinoshita said.

China is confident and has the conditions to reach the government’s target of 8 percent economic growth in 2009, said Liu Tienan, Vice Chairman of the National Development & Reform Commission, at a briefing in Beijing today.

Elsewhere, Malaysia’s ringgit traded at 3.6925 per dollar, headed for a monthly decline of 2.3 percent. Thailand’s baht fell to 36.08, a two-year low. The Philippine peso traded at 48.695, poised for a monthly loss of 2.7 percent. China’s yuan was little changed this month at 6.8407.

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