Rupiah Passes Rupee as Asia’s Worst Currency

September 17, 2013 Leave a comment

Rupiah Passes Rupee as Asia’s Worst Currency: Chart of the Day

Indonesia’s record current-account deficit will drive away foreign investors and add pressure on the rupiah, the worst-performing currency in Asia since the beginning of June, according to Nomura Holdings Inc. The CHART OF THE DAY tracks Indonesia’s current-account balance as a percentage of gross domestic product and the rupiah versus the dollar. The currency has weakened 13.9 percent since the start of June, compared with the 10 percent drop in India’s rupee, to be the worst performer in Asia during the period.Bank Indonesia has embarked on its most aggressive tightening since 2005, joining Brazil and India in taking steps to support their currencies as the prospect of reduced U.S. monetary stimulus prompts investors to sell emerging-market assets. Indonesia’s foreign-exchange reserves have declined as the central bank defended the rupiah, while bondholders are demanding higher yields to hold its debt.

“The current-account deficit is the main factor in the rupiah’s decline, not just from its direct impact on foreign-exchange supply but also from the confidence channel,” said Euben Paracuelles, a Singapore-based economist at a unit of Japan’s largest brokerage. “Nomura forecasts the deficit to narrow in second half of 2013, but it is the capital outflows amid Fed tapering concerns that could be more dominant for the rupiah.”

Indonesia sold $1.5 billion of dollar-denominated Islamic bonds this month at the highest yield since 2009; its reserves are near the lowest level in almost three years; and foreigners have pulled out $2.66 billion from local equities since the start of June. The trade deficit widened to a record in July as an export slump extended to a 16th month, while the expanding middle class increased purchases of manufactured goods and fuel.

“The need to defend the currency while also improving the current-account deficit leaves the country with one option — to raise interest rates,” Credit Suisse Group AG said in a Sept. 13 report, with Indonesia more vulnerable to tapering than Thailand or the Philippines. “Higher rates can attract more bond flows, enhance investor confidence in the country’s commitment to defend the currency and cut the current-account deficit by reducing aggregate demand and slowing imports. The sad result is higher discount rates for stocks and slower growth.”

To contact the reporters on this story: Lee Miller at lmiller@bloomberg.net; David Finnerty in Singapore at dfinnerty4@bloomberg.net

Filed under Macro Trends

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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.

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