A rally that had nine of Asia's 10 most-traded currencies strengthen against the dollar this year may fizzle as a slowing US recovery delays a rebound in exports and deters overseas investment.
Asian stock markets stood still in April, after soaring in the first quarter, on concern export companies' orders and earnings won't rebound as fast as expected. That may prompt foreign investors to cut their share holdings and take money home, while leaving exporters with fewer dollars to repatriate. Some investors say that will drive down the region's currencies.
"Asian currencies have rallied too much, too fast," said Jan Lee, strategist at HVB AG in Singapore, who helps manage more than US$1 billion in Asian investments. "This is not just a breather, but a reassessment of the growth perspective."
PHOTO: AFP
Indonesia was the star performer this year, with the rupiah rising 12 percent. Yet the Jakarta Composite Index, which surged 38 percent this year, now trades at the same level as three weeks ago at 539.81. In the Philippines, where the peso gained 4.2 percent this year, the stock index has gone nowhere for three months.
Other stock markets fell. In South Korea, where the won rose 2.6 percent this year, the Kospi is down 11 percent in two weeks.
Taiwan's TAIEX is down 13 percent in that period and investors say the slump may threaten the New Taiwan dollar's 1.2 percent gain this year.
"If the US doesn't pick up, do you think other countries can?" asked Chan Cheh Shin, who helps oversee about US$2.2 billion in Asia at DBS Asset Management (Singapore) Ltd.
"I still favor the dollar against Asian currencies."
The Manila-based Asian Development Bank voiced concern in its annual outlook that a restrained US appetite for the region's exports will hamper growth and the value of its currencies and other assets.
The US economic growth rate may almost halve from its 5.8 percent annualized pace in the first quarter as consumer confidence wanes and companies report lower-than-expected earnings.
In Singapore, March non-oil domestic exports, which rose by a quarter from February, fell 17 percent from a year ago. Taiwan's exports extended their slide to a 13th month in March even as manufacturers shipped more parts to factories in China.
The US unemployment rate provided further evidence a recovery will be slower than forecast when it rose to the highest level in over seven years in April. Businesses typically put off hiring full-time employees while waiting for the recovery to pick up momentum.
That may take a while.
US growth is likely to slow to a 3.4 percent annual rate this quarter and remain close to that pace for the rest of the year, according to consensus estimate from the Blue Chip Economic Indicators survey of about 50 economists.
Dell Computer Corp, the world's largest personal computer maker, said demand for their products was stagnant, dousing optimism earnings for Asian computer-related companies, which rely on US orders, will pick up anytime soon.
A revival in US demand for semiconductors, disk drives and other computer parts is crucial for most of Asia, which relies on the world's No. 1 economy to buy a quarter of its exports.
Nanya Technology Corp (南
Stock investors are getting the message. Thailand's SET index fell 3 percent in the past two weeks, paring its gain for the year to 23 percent. The baht gained 3.1 percent this year, lifted by a flood of foreign investment.
"It's not realistic to always expect 30 percent gains," said Ian Lui, chief investment officer at Allianz Asset Management Co in Singapore, which has US$550 million under management in Asia excluding Japan. Asian markets have "already reacted positively" to the outlook for a US recovery, he said.
Some investors expect domestic spending in Asia to prevent economies from sinking deeper into a slowdown and are optimistic about the region's stocks and currencies.
Consumption and investment at home prompted the South Korean and Thai governments to raise this year's growth targets.
"We're definitely still going to accumulate more Asian stocks," said David Chapman, who helps manage US$700 million at Towry Law Asia Ltd in Hong Kong. "Taking a six-month view, we're very positive on most markets."
Other investors are more cautious. Anthony Muh, who helps manage US$12.8 billion in Asia outside Japan as a regional head of investments at Citigroup Asset Management in Hong Kong, forecasts 4.6 percent growth in Asia Pacific excluding Japan this year.
"The market has moved ahead of itself in terms of expectations of a full-fledged recovery in the technology sector," said Muh. Asian stocks, he says, are "no way as attractive as they were six months ago."
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