Reawakening interest in currencies
By Jennifer Hughes
Published: May 8 2003 17:28 | Last Updated: May 8 2003 17:28
Asia's currencies suffered badly when the outbreak of the Sars virus prompted outflows of funds from the region. Now, however, as those concerns abate, investors appear to be extending their interest in emerging markets to Asia once again.
Two of the best performers in recent days have been the Singapore dollar and the Korean won, both of which sold off heavily as investors pulled funds home in March ahead of the war with Iraq. Both then continued to struggle as fears over the impact of the Sars virus spooked market sentiment.
On Thursday, the Korean won was trading at Won1,199 against the dollar, a two-month high, from levels around Won1,260 in April.
"Foreign investors are beginning to bite at Korean equities," said Claudio Piron, emerging markets strategist at Standard Chartered, who also noted the easing of tensions over North Korea's nuclear capability. "The latest signs suggest that diplomatic efforts are taking priority," he added.
Korean equity markets were closed on Thursday, but have gained over the past week, encouraging foreign investors looking for bargains in the region. Net foreign purchases or Korean equities have begun this week to register a net inflow, the first time they have done so since early February.
But intervention fears were beginning to limit the won's upside after officials threatened to intervene to stem the won's appreciation. Korea's heavy reliance on exporters means, along with Japan and Taiwan, for example, that is keen to have a weak currency.
The Singapore dollar too has staged a sharp rally, gaining 2.2 per cent over the last five days to a two-month high at S$1.730 against its US counterpart.
Moreover, strategists predict further gains to come as the currency moves back within the trading band usually permitted by the Monetary Authority of Singapore.
The actual range of the trading band is not disclosed by the MAS, and strategists estimate its range by approximating the currency's trade-weighted index.
Analysts said the double shock to the markets of the Iraq war and the Sars virus pushed the MAS to allow the currency to fall below the band on a temporary basis, and unlike Korea, will have no problem with its appreciation in the near-term.
"Appreciation in the next few weeks will just be a return to normal levels," said Marios Maratheftis, a colleague of Mr Prion's at StanChart.
But Mitul Kotecha, global head of FX strategy at Credit Agricole Indosuez, warned the effect of Sars on the Singapore currency had some way yet to go.
"Whether the gains will be sustainable depends on the impact on the economy of Sars," he warned. "Singapore has already slashed official growth forecasts for this year, but may have to cut further if the Sars situation in China worsens further." |
