Wed, Jun 24, 2015 - Page 13 News List

Asian nations to lean on current-account surpluses

Reuters, SINGAPORE

Emerging markets in North Asia such as Taiwan and South Korea are to lean on their strong current-account surpluses to counter any ill effect of a US interest rate hike on their currencies, in contrast with their more exposed peers in Southeast Asia.

Higher US rates could divert capital from emerging Asia, weighing on the region’s currencies. To help counter that, a nation would need trade surpluses, which would contribute to current-account gains and currency strength as seen in the cases of Taiwan and South Korea.

Current-account surpluses also deter currency speculators, which descended on economies reeling in deficits in the 1997-1998 Asian financial crisis.

Taiwan posted a US$22 billion surplus in the first quarter, while South Korea reported a current-account surplus of US$40.9 billion on a seasonally adjusted basis in the first four months of this year. China had a surplus of US$78.9 billion for the same period.

By contrast, Indonesia had a US$3.9 billion deficit. Malaysia reported a small US$10 billion surplus, but its outlook is marred by low commodity prices seen undermining the value of the nation’s exports.

Reflecting the surpluses, the currencies of emerging economies in North Asia have outpaced their Southeast Asian peers this year. The New Taiwan dollar has gained 2.9 percent against the US dollar, while the won has eased 0.5 percent and the yuan retreated 0.1 percent. The Indonesian rupiah has lost 7 percent, hitting a 17-year low this month and the Malaysian ringgit has fallen 6.9 percent, while the Thai baht has dropped 2.5 percent.

“The stronger external balances should provide Northeast Asian currencies with some comfort and buffer versus their Southeast Asian peers over the longer run,” said Lee Jin-yang, a macro analyst at Aberdeen Asset Management in Singapore.

However, some currency bears say that Taiwan, South Korea and China are enjoying current-account surpluses because imports are falling faster than exports, not because of surging outbound shipments.

Still, Southeast Asia is comparatively worse off due to its dependence on commodities. Taiwan and South Korea at least export tech products, which are more resilient than coal, copper and oil.

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