Sun, Jan 02, 2011 - Page 10 News List

Growth brings foreign capital to Asia

FUNDAMENTALS:While the ringgit led gains in Asia last year, the yen was the top performer against the US dollar, which in turn gained the most against the euro since 2005

Bloomberg

Asian currencies completed their biggest gain since 2006 as the region’s world-leading economic growth and widening interest-rate premiums attracted capital from overseas.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active currencies excluding the yen, climbed 5.2 percent last year as funds based abroad poured a total of US$63.4 billion into shares in Taiwan, India, Indonesia, the Philippines, South Korea and Thailand.

“The combination of strong growth and rising interest rates are attracting capital inflows into the region,” said David Cohen, an economist at Action Economics Ltd in Singapore. “Asian currencies have very strong fundamentals and as China continues its appreciation of the yuan next year, the others will follow.”

Malaysia’s ringgit led gains in Asia last year, advancing 11.8 percent to 3.0635 per US dollar in Kuala Lumpur, its best year since 1973, data compiled by Bloomberg show.

The New Taiwan dollar gained 5.2 percent last year to NT$30.368 against the greenback.

The nation’s central bank on Thursday unveiled additional measures to counter capital inflows as it raised borrowing costs for the third time last year. It lifted the reserve requirement on some local-currency deposits by foreigners to as much as 90 percent. Policymakers raised the policy rate to 1.625 percent from 1.5 percent, compared with near zero rates in the US and 1 percent in the euro area.

Thailand’s baht climbed 11 percent last year, the second-best performance in Asia excluding the yen. The baht strengthened 0.6 percent on Friday to 29.98 per US dollar in Bangkok, according to data compiled by Bloomberg.

Singapore’s dollar rose 9.3 percent last year to S$1.2823, while the Philippine peso appreciated 5.7 percent to 43.62 pesos against the US dollar. Indonesia’s rupiah gained 4.6 percent to 8,978 and the Indian rupee appreciated 4.1 percent to 44.71.

China’s yuan strengthened beyond 6.6 per US dollar for the first time in 17 years bringing gains for last year to 3.6 percent on speculation China will seek appreciation to tame inflation. The Chinese currency climbed 0.6 percent from a week ago to 6.5897.

The US dollar had its biggest gain against the euro in five years as concern about Europe’s debt crisis spurred demand for alternative investments while the Federal Reserve embarked on a plan to buy US debt.

The Dollar Index, which IntercontinentalExchange Inc uses to track the dollar, finished the year at 79.028, up 1.5 percent.

The euro was the worst-performing major currency against the US dollar last year, sliding 6.5 percent, finishing the year at US$1.3384. The second-worst performer was the pound, which had a 3.5 percent loss.

The biggest winner against the greenback last year was the yen, soaring 14.7 percent. The median estimate by 36 economists sees the Japanese currency reaching ¥90 against the US dollar in the fourth quarter of next year. It finished the year trading at ¥81.12 per dollar.

Against the euro, the pound was at £0.8577 on Friday, 3.3 percent stronger in the year as the sovereign-debt crisis in countries including Ireland, Portugal and Greece underpinned sterling. The UK currency strengthened 0.8 percent against the yen to ¥126.81 per pound, trimming losses to 2.6 percent last month, its biggest monthly decline since August. Sterling has depreciated 19 percent versus the Japanese currency last year.

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