HSBC Holdings Plc recommends investors stop buying currencies of Asia excluding Japan, saying they may drop as rising oil-import prices hurt regional current-account balances and interest-rate increases trim growth prospects.
"The bull market for the Asian currencies is pretty much done," Mike Newton, a Hong Kong-based currency strategist at HSBC, Europe's biggest bank by market value, said in a phone interview.
Asia consumes almost a third of the world's oil, with all countries except Malaysia being net importers. Officials from Thailand, Singapore and the Philippines have said costlier crude will slow growth. The Philippines imports almost all its oil.
All Asian currencies gained against the US dollar last year except the Philippine peso and South Korean won. The Thai baht strengthened 8.9 percent, the Indonesian rupiah rose 6.3 percent and Taiwan's NT dollar advanced 2.3 percent.
The baht has fallen since, dropping 3.3 percent this year, while the rupiah lost 10.3 percent, making it the biggest decliner in Asia. The won strengthened 3 percent.
Oil prices are likely to "rise significantly over future months" as demand continues to surge with an expanding world economy, hurting current-account balances and currencies in Asia, HSBC said in a research note dated June 11.
Crude for July delivery yesterday rose US$1.14, or 3.1 percent, to settle at US$38.46 a barrel on the New York Mercantile Exchange, the highest close since June 7. It reached a record US$42.45 on June 2.
"You'd probably look to buy dollar-Asia across the board right now," Newton said. "But at the same time, you may be safer to buy the yen against the Asian currencies." He declined to comment on individual currencies.
Recent data out of Japan shows a "broad-based economic recovery is entrenched," the HSBC report said. Costlier oil imports account for less than 2 percent of the country's gross domestic product, and are unlikely to derail growth, it said.
Japan's economy is "gathering strong momentum," the country's central bank said in its monthly report Tuesday, raising its assessment of the economy for the first time since April. The Bank of Japan also decided to keep interest rates close to zero to support the recovery.
Prospects of higher interest rates as Asian central banks, outside of Japan, follow the US Federal Reserve in raising the cost of borrowing may also hurt their currencies, HSBC said.
Asian currencies "do not rally significantly when onshore rates rise because of the importance of growth expectations in determining marginal capital flows," the report said.
Federal Reserve Bank of Richmond President J. Alfred Broaddus said in an interview Wednesday that the Fed is "clear that we need for rates to move up." The rate-setting Federal Open Market Committee is expected to raise the benchmark overnight bank lending rate by 25 basis points to 1.25 percent on June 30, based on the median forecast of 130 economists surveyed by Bloomberg. South Korea and Thai central banks last week left key rates unchanged at record lows for an 11th month.
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