Growth potential sets the scene for rally in Asian units

Taiwan dollar and Indonesian rupiah forecast to lead a recovery in Asian currencies in 2014 as impact from Fed's stimulus reduction subsides

PUBLISHED : Saturday, 28 December, 2013, 12:39am
UPDATED : Saturday, 28 December, 2013, 12:39am

Taiwan's dollar and the Indonesian rupiah are forecast to lead a recovery in Asian currencies next year as attention shifts to the region's growth potential and away from the reduction in the monetary stimulus in the United States.

The Taiwanese dollar would climb 2.5 per cent by the end of 2014, while the rupiah would start reversing this year's 21 per cent loss by rising 1.6 per cent, surveys showed. South Korea's won and China's yuan are seen gaining 1.3 per cent and the Thai baht 0.6 per cent.

Taiwan's potential export gains from a global economic pick-up and Indonesia's yield advantage over most of Asia are adding to the appeal of their currencies as Deutsche Bank says the region offers the best growth prospects next year.

The Federal Reserve's decision last week to start cutting its monthly bond buying had mostly been priced into Asian exchange rates, setting the stage for advances, Societe Generale said.

We haven’t seen any toxic reaction to the Fed statement

"We haven't seen any toxic reaction to the Fed statement, there's been no bloodbath," said Benoit Anne, head of emerging-market strategy at SocGen. "When investors come back to work in January, they're going to realise there's a huge window of opportunity to go long emerging-market assets."

Pacific Investment Management and Deutsche Bank say Asia will receive a boost from a recovery in developed markets next year. The region's emerging economies would grow 6.5 per cent in 2014, outpacing the 5.1 per cent expansion of developing nations around the world and 2 per cent for advanced countries, the International Monetary Fund forecast in October.

Asian currencies would hand investors a 2 per cent return in 2014, while counterparts in the Europe, Middle East and Africa region would gain 4.5 per cent and Latin America's would lose 1 per cent, Deutsche Bank said.

"Emerging markets are maturing," Deutsche Bank analysts wrote in a report last week. "[For growth], Asia remains best placed."

The Taiwanese dollar will strengthen to NT$29.30 by the end of next year, according to the median of analysts' estimates, after reaching a four-month low of NT$30.039 on Tuesday. The currency has lost 3.3 per cent this year, its biggest decline since it fell 5.7 per cent in 2001.

The rupiah would climb to 12,000 per US dollar by the end of 2014 from 12,200, a separate survey showed. The currency tumbled to a five-year low of 12,260 on Monday.

The yuan and the won would probably perform better than peers in coming months, while the outlook for Malaysia's ringgit was improving, said Manik Narain, an emerging-market strategist at UBS.

Concerns remained about India's rupee, which fell to a record low of 68.845 per dollar in August, and the rupiah, he said. The rupee would end next year at 62 per dollar from 61.79 on Tuesday, another poll showed.

India and Indonesia would be the only nations among Asia's 10 biggest economies to run current-account deficits in 2014, Deutsche Bank estimated in a report dated December 19.

Options are also signalling improved confidence in Asian currencies. One-month implied volatility fell in the past three months for all 11 of the region's top currencies, data showed.

Volatility had surged after Fed chairman Ben Bernanke first signalled a reduction in the stimulus programme in May.

After a year when strategy was dominated by expectations for when the Fed would taper stimulus, 2014 would focus on Asian governments' economic reforms, UBS said.

China's leaders pledged last month to speed interest-rate and foreign-exchange reforms and to allow market forces a "decisive" role in the allocation of resources.