VINACHEM

A decade and a half of goodhousekeeping is spurring Asian currencies from Indonesia’srupiah to Thailand’s baht as investors increasinglydifferentiate between emerging-market assets.

Of more than 20 developing-nation exchange rates tracked byBloomberg, the rupiah, baht and Singapore dollar are the onlyones to have gained this year, while options prices show Asiancurrencies are best placed to ride out further losses. Investorsare most pessimistic about Argentina’s peso, which was devaluedlast month, and Turkey’s lira, after the country’s ratingoutlook was cut by Standard & Poor's less than two weeks ago.

Helped by fast-growing economies, Asia’s developing nationshave built up foreign reserves and trade surpluses after beingforced to seek International Monetary Fund loans following theregion’s financial crisis of the late 1990s. Emerging-marketcurrencies suffered their biggest exodus since 2008 over thepast year, as the Federal Reserve reduced its unprecedentedmonetary stimulus and China’s manufacturing industry slowed.

“High levels of foreign-exchange reserves and mostlyhealthy external positions will help to provide a degree ofresilience to Asian currencies,” Mitul Kotecha, the global headof foreign-exchange strategy at Credit Agricole SA in Hong Kong,said yesterday. “Nonetheless, Fed tapering and subsequentcapital outflows will limit any appreciation.”

Won, Peso

Credit Agricole sees South Korea’s won, which has gained1.7 percent since Feb. 4, rising 2.5 percent by mid-year to1,040 per dollar. The Philippine peso will climb 3.1 percent to43.3 to the greenback, it predicts.

Indonesia’s rupiah rose 2.5 percent this year, touching athree-month high of 11,658 per dollar yesterday, while the bahtgained 0.9 percent to a two-month high of 32.207. Singapore’sdollar is up 0.1 percent to S$1.2617 to the greenback, andreached the strongest level yesterday since Dec. 18.

South Korea, Malaysia, Taiwan, Indonesia, Thailand and the Philippines had combined foreign-exchange reserves of $1.2trillion last month, more than five times the $233 billionfigure at the end of 1998, official data show. China’s foreign-currency holdings reached a record $3.8 trillion in December,the world’s largest, from $145 billion 15 years earlier.

‘More Selective’

“Economies with better reserves and current-accountpositions are stronger because investors will become moreselective as the Fed tapers,” Tsutomu Soma, manager of thefixed-income business unit at Rakuten Securities Inc. in Tokyo,said in a Feb. 13 phone interview. “That puts Asia in a betterposition to lead the emerging-market recovery, and the optionsmarket reflects that.”

While options traders expect all but one of 23 developingcurrencies tracked by Bloomberg to weaken this year as investorsplow money into havens, the six least-bearish wagers are all onAsian currencies.

The premium that traders pay for one-year options givingthe right to sell China’s yuan over contracts allowing purchasesis 0.95 percentage point, the smallest in the group and downfrom a four-month high of 1.28 on Feb. 5.

Taiwan’s dollar had the next-smallest premium at 1.45percentage points, down from 1.79 on Jan. 17. Traders pay asmuch as 10 percentage points more to sell Argentina’s peso thanto buy it, while the extra cost for the lira is 6.32, up from4.32 in October, data compiled by Bloomberg show.

Hong Kong’s dollar, which is pegged to the U.S. currency,is the only one of the 23 currencies that traders are bettingwill strengthen.

Asian Crisis

The Asian crisis of 1997-98 started with a real-estatemeltdown in Thailand, before spreading across the region.Nations including South Korea spent billions of dollars tryingto fend off speculators who were selling their currencies,before being forced to devalue their exchange rates. They endedup seeking bailouts from the IMF that required governments toadhere to economic targets.

The countries have spent the past 15 years making sure thiscan never happen again. Healthier current-account balances fromthe Philippines to South Korea make them less vulnerable to U.S.stimulus cuts, while improving foreign reserves in China andTaiwan contrast with declines in those of Argentina and Turkey.

Blankfein’s View

The changes since the crisis have made Asian countriesbetter able to weather a crisis, Goldman Sachs Group Inc. ChiefExecutive Officer Lloyd C. Blankfein said in a Feb. 11 BloombergTelevision interview.

“Asia is not facing significant depreciation of theircurrencies,” Craig Chan, the head of Asia ex-Japan currencystrategy at Nomura Holdings Inc. in Singapore, said in aninterview yesterday. “There have been significantimprovements.”

Developing nations elsewhere in the world don’t have theadvantage of having spent years building up their defensesagainst attacks by speculators.

Turkey and Argentina have the lowest percentage of reservesto gross domestic product at 4 percent and 6 percent, signalingtheir inability to withstand capital flight, according to aGoldman Sachs report on Jan. 29.

Argentina spent $25 billion of its foreign reservesdefending the peso since March 2011, and still had to devaluelast month, while Turkey only reversed the lira’s slide byunexpectedly raising its main interest rates to put offspeculators. S&P cited Turkey’s widening current-account deficitand falling reserves when it lowered the outlook on its BB+credit rating to “negative” from “stable” on Feb. 7.

Faster Growth

“We find overvaluations in Latin America and Europe,Middle East and African currencies more than in Asia based oncurrent accounts,” Bhanu Bawyeja, UBS AG’s head of emerging-market cross-asset strategy in London, said in an interviewyesterday. “We are most negative on EMEA currencies than anyothers,” particularly Hungary’s forint, Turkey’s lira and SouthAfrica’s rand, he said.

Asia’s developing economies will grow 6.7 percent in 2014,compared with 2.8 percent in central and eastern Europe and 3percent for Latin America and the Caribbean, the IMF forecasts.

DBS Group Holdings Ltd., Southeast Asia’s largest lender,predicts most of the region’s currencies will appreciate, led bygains of 7.1 percent in the won to 995 per dollar by year-endand 4.8 percent in Malaysia’s ringgit to 3.15.

“We expect to see significant inflows into Asia over thenext several years based on Asia’s growth differentials with therest of the world,” David Cacbon, an economist at DBS inSingapore, said in a Feb. 12 e-mail. “The rout in emerging markets is a misnomer. Latin America and emerging Europe arebeing hit but Asia, for the most part, is not.”