Picky Fund Flows May Shield Northeast Asia Currencies From Fed Storm

Picky Fund Flows May Shield Northeast Asia Currencies From Fed Storm

By Jonathan Vit on 10:36 am August 23, 2013.
Singapore. Faced with tumbling markets as the US Federal Reserve becomes more likely to ease its stimulus measures, investors dedicated to emerging Asian markets are betting that the South Korean won and Taiwan dollar will fare better than their Southeast Asian counterparts. Dedicated Asian investors have to invest in the region so they are putting their money into Taiwan and Korea.Not only do these countries have superior fiscal and current account positions but their high-tech exports have proved more resilient to the global slowdown, especially China’s more recent slowdown, than Southeast Asian economies which are heavily reliant on exports of commodities and raw materials.

This explains why the Taiwanese dollar and the won have fallen less than 1 percent against the US dollar since May 22, when the US Fed said it might start easing its stimulus measures this year, possibly as early as next month.

By contrast, the Indonesian rupiah has plunged 10 percent, the Malaysian ringgit 9 percent and the Thai baht 7 percent over the same period.

“The won and the Taiwan dollar look like safer bets at this stage,” said Westpac’s senior FX strategist Jonathan Cavenagh, adding that funds were moving from Southeast Asia and into Northeast Asia.

The currencies tell the story and so does government fund flow data.

While foreign investors dumped emerging Asian assets in June after the US Fed’s tapering indications and have continued to sell many Southeast Asian assets aggressively since then, government data shows that foreigners have been investing in Taiwanese and Korean shares again.

Taiwan reported $2.8 billion of capital inflows in July, making up for most of June’s $3.0 billion in outflows. While foreigners have sold some Taiwan stocks in August, the selling has been smaller than July’s inflows.

Foreigners have put $1.2 billion into South Korean stocks in July and a further $654 million into the main exchange this month to Aug. 21. July’s figures include inflows to KOSPI and junior KOSDAQ, but August’s figures show only flows to KOSPI. Full data will be out in early September.

July was the sixth straight month that foreign investment in Korean bonds rose.

Outflows from Indonesia, Malaysia and Thailand, by contrast, continued through July and August.

From July to Aug. 21, foreigners pulled $581 million out of Indonesian stocks, although they have increased their bond holdings by $371 million since the end of June.

During the same period, foreigners sold $1.1 billion of Malaysian stocks and $955 million of Thai shares .

Thai Bond Market Association data shows $748 million of outflows from July to Aug. 16.

Better fundamentals

“All Asian FX fundamentals look ugly. But if I have to pick up less ugly currencies, I would choose the won and the Taiwan dollar, which were supported by some fund inflows,” said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul.

Other investors agreed.

“The Korean won is still cheap,” said Nicholas Ferres, an investment director at Eastspring Investments, which manages 62 billion sterling ($97 billion) in Asia.

Some fund managers are even upbeat on the outlook for South Korea’s economy and its equities market.

“The latest GDP data suggests stabilization,” said Geoff Lewis, global market strategist at JPMorgan Asset Management, referring to data showing second-quarter growth was at highest in over two years.

Lewis said Seoul shares looked cheaper than other emerging Asian equities. Thomson Reuters data shows Korean shares are trading at 9.4 times estimated earnings.

While Korean equities usually trade at a discount because of geo-political risks and concerns about corporate governance at some of the big conglomerates, Eastspring’s Ferres said that this was overdone.

“In the global context, trading below 10 times earnings around book value is a cheap market,” said Ferres.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: