Asian growth worries to push down local currencies

Asian currencies are poised to extend declines amid concern an increase in borrowing costs in China and a weakening yen threatens economic growth in the region, JP Morgan Chase said.

"A trend of bearish" Asian currencies will "kick off," JP Morgan analysts including Hong Kong-based Bert Gochet wrote in a report on Thursday. "Worries over China's tight liquidity stance generate downside risks to growth."

Money market rates in mainland China jumped last month to a six-month high, raising concern that tighter lending conditions may slow the economy. The yen's 15 per cent decline over the past year is fuelling 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 this week on concern the US Federal Reserve may accelerate the withdrawal of stimulus as the United States economy improves. The Malaysian ringgit posted its biggest two-day drop since November, while the South Korean won fell 1.3 per cent from the five-year high set in December.

Based on conversations with customers of the Fed's eased stimulus, JP Morgan said local bond funds had not received any inflows so far this year. This would be the first time that inflows had not been recorded in January since 2008, JP Morgan said, citing data from researcher EPFR Global.

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