Western Asset Buys Won on Highly Competitive Exports

By Lilian Karunungan

April 1 (Bloomberg) -- Western Asset Management Co. bought the South Korean won last month, predicting the currency’s 28 percent decline in the past year and China’s stimulus plan will make Korea’s exports “highly competitive.”

“The won is a new position for us in the course of the last month,” said Rajeev De Mello, the head of Asian investments in Singapore for Western Asset, which manages $513 billion globally. The currency “has been extremely weak,” he said in an interview yesterday. “That’s made Korean exports highly competitive.”

While South Korean exports fell for a fifth month in March, extending the longest run of declines since 2002, Hyundai Motor Co. has gained share in the U.S. car market. Its U.S. sales rose 4.9 percent in the first two months, even as overall car sales in America slumped 39 percent.

The 4 trillion yuan ($585 billion) stimulus plan in China, Korea’s biggest international market, will also spur exports, said De Mello. He also holds investments in Indonesian rupiah, Philippine pesos and Taiwan dollars.

South Korea was the biggest loser among Asian currency markets in the past year before strengthening 11.6 percent in the past month. The gains pared its loss this year to 8.4 percent.

All of the region’s 10 most-active currencies outside of Japan weakened this year. Emerging-market bond funds absorbed new money for only the second time in the past 33 weeks during the fourth week of March, according to EPFR Global, a research company based in Cambridge, Massachusetts.

Underweight on Baht

The won may strengthen 5.7 percent to 1,300 against the U.S. dollar by the end of the year, according to the median estimate of 24 analysts in a Bloomberg News survey. The currency rose 0.7 percent to 1,374.50 as of 12:43 p.m. local time, according to Seoul Money Brokerage Services Ltd.

The won may weaken before rebounding because demand for Asia’s exports won’t recover in coming months, said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore.

“The won will probably return to the 1,500 area in the next couple of months as risk appetite remains cautious and Asian exports continue to remain in the doldrums,” said Ng.

Asian economies will expand at the slowest pace since 1998 as the global recession hurts trade and government stimulus plans take time to revive growth, the Asian Development Bank said yesterday. The region excluding Japan will grow 3.4 percent this year before recovering in 2010 with a 6 percent expansion, the Manila-based institution said in a report.

Contracting Economy

Western Asset cut its holdings of Thai baht because it hasn’t weakened enough to increase earnings for the country’s exporters. The Thai baht rose 1.8 percent in the past month for a decline of 2.3 percent this year.

Thailand’s economy may shrink as much as 3 percent this year, the Finance Ministry forecast last week. Exports, which make up 70 percent of the economy, have fallen for four consecutive months.

“The currency that I’m a little bit worried about is the Thai baht,” said De Mello, who holds $5 billion in Asian bonds. “Thailand’s growth is quite weak and also Thailand depends a lot on exports.”

Indonesia’s currency and bonds should benefit from its currency-swap deals with Japan and China as well as from $5.5 billion of standby loans with multilateral organizations, De Mello said. Indonesia also sold $3 billion of dollar bonds overseas on Feb. 27. The rupiah rose 3.1 percent in the past month, paring its losses this year to 6.2 percent.

Western Asset doesn’t intend to add to its Philippine peso holdings on concern about “lower repatriation by overseas Filipino workers,” De Mello said. The firm, a unit of Legg Mason Inc., has kept a “small exposure” to the Taiwan dollar.

“We’re quite neutral on the Taiwan dollar,” De Mello said. “The Taiwanese are also worried about losing competitiveness especially compared to Korea.”

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