Options traders are the least bearishon Asian currencies versus the dollar in a year as confidencebuilds that China will avoid a so-called hard landing, helpinglure funds as Europe’s debt crisis deepens."/>Options traders are the least bearishon Asian currencies versus the dollar in a year as confidencebuilds that China will avoid a so-called hard landing, helpinglure funds as Europe’s debt crisis deepens."/>
Options traders are the least bearishon Asian currencies versus the dollar in a year as confidencebuilds that China will avoid a so-called hard landing, helpinglure funds as Europe’s debt crisis deepens.
The premium charged for the right to sell China’s yuan in amonth over contracts to buy the currency, known as the risk-reversal rate, was 15 basis points as of 2:14 p.m. in Shanghai,down from 64 basis points at the end of last year, according todata compiled by Bloomberg. Among 22 emerging-market currencies,nine of the 10 lowest rates are in Asia with an average premiumof 71 basis points on May 2, the lowest since April 2011.Traders pay 375 basis points extra for the right to sellBrazil’s real, the biggest premium among developing nations.
The more positive outlook for emerging Asia, whose 10biggest economies hold half of the world’s $10 trillion incurrency reserves, reflects healthy government finances thatmake the region a preferred investment destination, according to Standard Chartered Plc. The ratio of public debt to grossdomestic product in China is 44 percent and that in Thailand,whose currency is the second-least bearish based on the risk-reversal rate, is 41 percent. Brazil’s ratio is 54 percent.
“Asian nations continue to flourish, resulting in above-average growth,” Douglas Borthwick, the head of foreign-exchange trading at Faros Trading LLC in Stamford, Conneticut,said in a May 4 interview. “Asian emerging-market currenciescontinue to be attractive for investors.”
Japan, China, South Korea and 10 Southeast Asian nationsagreed on May 3 to boost the so-called Chiang Mai InitiativeMultilateralization agreement, which involves a pool of foreign-currency reserves, to $240 billion from $120 billion.
Borthwick said out-of-the-money dollar put options “seemgood value given Asian currency strength appears inevitable,especially given the update in the Chiang Mai Initiative.” Thecontracts give the right, but not the obligation, to sell thedollar at a strike price below the current market rate.
The risk reversal for the baht, the smallest after the yuan,narrowed 14 basis points this year to 61 basis points, and therate for Taiwan’s dollar fell 17 basis points, or 0.17percentage point, to 69 basis points. The rate for thePhilippine peso slumped to 97 basis points from 150 basis points.
Developing Asian economies grew 7.8 percent in 2011,compared with 5.3 percent for central and eastern Europe and 4.5percent for Latin America, according to the International Monetary Fund. The average cost of insuring emerging Asia’ssovereign debt for five years using credit-default swaps fell 34basis points this year to 158 yesterday. That compares with 310basis points for Latin America and 373 for emerging Europe.
Strong economic growth and improving credit ratings makeemerging Asia the best currency bet globally, according toDaniel Janis, a global fixed-income portfolio manager atManulife Asset Management in Boston. Moody’s Investors Serviceraised Indonesia to investment grade this year, while Greece, Spain, Italy and Portugal were all downgraded.
“We like Asia ex-Japan first,” Janis, who directlyoversees some $11.2 billion, said in an interview yesterday inSingapore. “If we‘re going to have a position versus the U.S dollar, we would want to have the Asia currencies unhedged.”
Asian currencies slid to the lowest level since Januaryyesterday as Greek politicians struggled to form a newgovernment, adding to concern Europe’s debt crisis will slowglobal growth.
Malaysian exports contracted 0.1 percent in March from ayear earlier, official data showed yesterday, compared with amedian forecast of economists in a Bloomberg News survey for a 3percent gain. China announced today exports increased 4.9percent in April from a year earlier, less than the medianforecast in a Bloomberg survey for an 8.5 percent increase andan 8.9 percent gain the previous month.
“We will likely see greater headwinds from the negativeimpact of elections in Europe and that could cast negativesentiment over Asian currencies,” said Yeah Kim Leng, chiefeconomist at RAM Holdings Bhd. in Kuala Lumpur.
Asian economies are stabilizing. China’s manufacturingexpanded for a fifth month in April while its foreign-exchange reserves climbed 3.9 percent in the first quarter of 2012 to$3.3 trillion, official data show. Consumer-price gains slowedto 3.4 percent last month from 3.6 percent in March, accordingto the median estimate of economists in a Bloomberg surveybefore data tomorrow. That would be the third straight monththat inflation has been within the government’s 4 percent target,making it easier for policy makers to focus on growth in theworld’s second-largest economy.
Gross domestic product in China increased 8.1 percent froma year earlier in the first quarter, the least since mid-2009,and signs of stabilization have led to a reduction in bets thatthe dollar will appreciate, said Callum Henderson, global headof foreign-exchange research in Singapore at Standard Chartered.
“Asian countries typically run external surpluses andthese should fundamentally lead to more favorable risk reversalsfor their currencies,” said Henderson. He sees the “bestmedium-term value” in the Taiwan dollar and South Korea’s won,adding that he also likes the Philippine peso.
Asian currencies typically have lower volatility, a measureof foreign-exchange swings used to price options, as theregion’s accumulated currency reserves allow policy makers toguard against extreme movements in their currencies.
Among emerging markets, eight currencies with the 10 lowestvolatilities are in Asia, led by China at 1.85 percent, Taiwanat 4.3 percent and Thailand at 4.51 percent. Implied volatilityon one-month options for the Hungarian forint was the highest at15.7 percent, followed by South Africa’s rand at 14.6 percent.
“In periods of soft global risk appetite, Asian currenciestypically tend to outperform slightly,” Olivier Desbarres, thehead of foreign-exchange strategy for Asia-Pacific ex- Japan at Barclays Capital in Singapore, said in an interview on May 8.“They are expected to be more stable due to overall strongermacro fundamentals and importantly, the prospect of central bankintervention to support the currencies should they come undermore acute pressure.”