Asian currencies will extend their biggest slide in three years through December before rebounding early next year as export demand picks up, Standard Chartered PLC said.
The South Korean won, the worst performer last quarter, will drop 1.8 percent against the US dollar during the current period and climb 7.1 percent in the first three months of next year, said the London-based bank, the region’s top forecaster as measured by Bloomberg News in the six quarters through last month.
Oversea-Chinese Banking Corp, the second-best foreign-exchange forecaster in Bloomberg’s survey, predicts the won will slip 1 percent by year-end and rise 2.6 percent in the first quarter.
The NT dollar will weaken 1.6 percent this quarter, according to Standard Chartered. It will then rally 5.8 percent in the first three months of next year as global funds return to its equities market and China, Taiwan’s biggest export market, lets its currency appreciate, said Thomas Harr, head of Asian currency strategy at Standard Chartered in Singapore.
Europe’s failure to resolve its debt crisis and a faltering US recovery have slowed export growth and trimmed economic expansions from China to Singapore. The global economy isn’t likely to see another recession as it did in 2008 as Europe will “muddle through” and US policymakers will stave off a downturn, Harr said.
“Asia will weaken more in the next one to two months because we do think we will get more bad news in terms of economic data globally,” he said. “The important thing is we don’t expect a global recession. Next year, money will come back to Asia. Fundamentals are strong here.”
Standard Chartered ranked as the top forecaster with an average margin of error of 2.66 percent for its Asian currency forecasts.
Taiwan and South Korea had the biggest net outflows last month among stock markets in Asia excluding Japan as foreigners pulled out US$2.6 billion and US$1.3 billion respectively, according to exchange data. Overseas funds cut their Indonesian bond holdings by an unprecedented 29 trillion rupiah (US$3.3 billion) last month, figures from the finance ministry’s Web site show.
“The three ones that will really do quite well from the beginning of next year will be the [South] Korean won, [the New] Taiwan dollar and the Indonesian rupiah,” Harr said.
“At the onset of the year, you’ll basically see investment funds searching for destinations,” said Emmanuel Ng, a currency strategist at Oversea-Chinese Banking in Singapore. “Inevitably, they will be going into emerging markets, including Asia.”
The rupiah, which lost 5.8 percent last month based on data compiled by Bloomberg that includes prices from offshore banks, will be the second-biggest gainer in the region during the six months through March with a 2.2 percent advance, the bank forecasts.
The yuan will probably strengthen 2.7 percent, it said.
“Indonesia’s story is backed by a positive sovereign outlook,” Ng said.
Westpac Banking Corp, the third-best forecaster, predicts Asian currencies will weaken through the first quarter of next year as regional central banks cut borrowing costs to support growth, reducing their yield advantage over US assets.
Bank Indonesia unexpectedly reduced its benchmark interest rate on Tuesday last week, while Taiwan, Malaysia, South Korea and the Philippines have refrained from raising rates at their latest reviews.
“Asian currencies excluding China will struggle to gain ground in the current environment with global growth slowing, rate hikes off the agenda and rate cuts looking increasingly likely,” said Huw McKay, a senior international economist at Westpac in Sydney.
The won, the Malaysian ringgit and the Indian rupee will drop 0.5 percent against the US dollar in the six months ending March 31 to 1,184, 3.21 and 49.21 respectively, according to estimates from Australia’s second-biggest lender.
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