Asian currencies gain as growth quickens

Asian currencies rose, with the Philippine peso and Singapore dollar posting the best weeks in at least four months, after reports showed economic growth in the region is gathering pace.

The Bloomberg-JPMorgan Asia Dollar Index reached a 20-month high after China’s economy expanded at the fastest pace in almost three years in the first quarter. Singapore revalued its currency amid the quickest growth since 1975, fuelling speculation other central banks will tighten policy to curb inflation. Inflows into emerging-market bonds increased to a record as investors favour higher-yielding assets.

“Economic growth is undoubtedly very, very strong out here in the east,” Benjamin Pedley, managing director of LGT Investment Management Ltd. in Hong Kong, said on Bloomberg Television. “I feel very confident that currencies like the Singapore dollar, the Korean won, the Indian rupee and the Malaysian ringgit are all going to continue to do very well in the next year or so.”

The peso strengthened 1.3 percent this week to 44.40 per dollar, its best performance since December 4, according to Tullett Prebon Plc. The Singapore dollar gained 1.3 percent to S$1.3729, the biggest advance since October 9. Taiwan’s dollar appreciated 0.7 percent to NT$31.39 and the South Korean won rose 0.7 percent to 1,110.23.

The Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, reached 113.33 on April 15, the highest level since August 2008, after China reported its economy expanded 11.9 percent from a year earlier. Singapore’s gross domestic product increased 32.1 percent in the three months to March 31 compared with the previous quarter.

Bond inflows

Emerging-market bond funds received an unprecedented $1.8 billion in the week to April 14 as high-yielding debt attracted global investors away from stocks, according to EPFR Global.

Currencies in emerging markets have appreciated this month, boosting returns on local bonds, and at the same time helping to curb inflation and preserve debt’s fixed payments.

“There’s a global reallocation going on,” said Kenneth Akintewe, a Singapore-based portfolio manager at Aberdeen Asset Management Plc, which oversees the equivalent of $221 billion globally. Given the choice between “debt-ridden countries” like the U.K., the U.S. and Japan, and “emerging-market economies with substantially good fundamentals, then you expect to see that global reallocation taking place.”

China policy

Gains in Asian currencies were tempered by concern China will tighten monetary policy to rein in soaring property prices. The cabinet on April 15 raised down-payment ratios for some home purchases and said it may take “more forceful” steps to cool speculation.

The People’s Bank of China may be poised to raise the amount of cash lenders must set aside as reserves for a third time this year, according to analysts at Daiwa Capital Markets and United Overseas Bank Ltd. Property prices rose at a record pace in March.

“There’s profit-taking in the wake of the China move to tighten the prudential requirements on property,” said Wai Ho Leong, an economist at Barclays Plc in Singapore. “The fundamental direction has not changed. Asia continues to lead the growth recovery, which is positive for currencies.”

The Philippine peso reached a 20-month high on speculation overseas Filipinos are sending more money home to pay for tuition fees ahead of the start of the school year in June.

Philippine remittances

The government reported that remittances rose 7.1 percent in February, compared with an 8.5 percent increase the previous month. Central Bank Governor Amando Tetangco said the full-year forecast for funds repatriated home may be raised from six percent.

“April and May are usually strong for remittances,” said Marcelo Ayes, vice president at Rizal Commercial Banking Corp. in Manila. “Whenever China revalues, the revaluation impact on countries like Singapore and Korea is five times.”

Elsewhere in the region, the Indonesian rupiah rose 0.2 percent this week to 9,008 per dollar. The Thai baht and China’s yuan were little changed at 32.24 and 6.8255, respectively. Vietnam’s dong traded at 19,050 compared 19,040 a week ago.

- Bloomberg