JPMorgan Sees Asian Currencies Extending Rout on Economy

JPMorgan Sees Asian Currencies Extending Rout on Economy

Asian currencies are poised to extend declines amid concern an increase in borrowing costs in China and a weakening yen threaten economic growth in the region, JPMorgan Chase & Co. said.“A trend of bearish” Asian currencies will “kick off,” JPMorgan analysts including Hong Kong-based Bert Gochet wrote in a report yesterday. “Worries over China’s tight liquidity stance generate downside risks to growth.”

China’s money market rates jumped in December to a six-month high, raising concern that tighter lending conditions may slow the world’s second-largest economy. The yen’s 15 percent decline over the past year is fueling speculation that a cheaper currency may help Japanese companies to grab export market shares from its competitors in South Korea and Taiwan.

The Philippine peso touched the weakest level since 2010 yesterday on concern the Federal Reserve may accelerate the withdrawal of stimulus as the U.S. economy improves. The Malaysian ringgit posted its biggest two-day drop since November, while the South Korean won fell 1.3 percent from the five-year high set in December.

The Fed started reducing its monthly bond purchases in January by $10 billion to $75 billion, reducing capital flows to emerging markets. The MSCI Emerging Markets Index of stocks has slid as much as 16 percent since May 22, when the Fed signaled its stimulus program could be trimmed.

Based on conversations with customers, JPMorgan said local bond funds haven’t received any inflows so far this year. This would be the first time it happens in January since 2008, JPMorgan said, citing data from research company EPFR Global.

‘Purest Expression’

The analysts recommend selling the ringgit as the “purest expression of positioning for a lack of EM local bond inflows.” Foreign investors held 45 percent of ringgit-denominated bonds in November, the most among 10 developing countries, making it susceptible to capital outflow, according to Credit Suisse Group AG.

JPMorgan advises further “underweight” the Philippine peso, saying local interest rates are too low. Investors should also exit a bet that South Korean won will rise as yen weakens.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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.

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