Rupiah, Won Will Lead Asian Currency Gains This Half, Top Forecaster Says - Bloomberg

Indonesia’s rupiah and South Korea’s won will lead Asian currency gains for the rest of 2011 as central banks use appreciation to counter inflation, says Credit Suisse Group AG (CSGN), the region’s most-accurate forecaster.

The rupiah will climb 4.5 percent and the won 4 percent in the six months through Dec. 31, after the two currencies were also the best performers in the first half, according to Credit Suisse, which Bloomberg data show had the best projections for the six quarters through June 2011. The Thai baht will climb 4 percent following a peaceful election on July 3, the bank predicted. Barclays Plc (BARC), which ranked second, expects the Taiwan dollar to perform best with a 4.7 percent advance.

Asian currencies strengthened in each of the last four quarters as the world’s fastest economic growth and rising interest rates attracted funds. Demand is also being supported by expectations that the Federal Reserve will keep its benchmark rate near zero and Japanese factory output will recover from the March 11 earthquake, said Goh Puay Yeong, a foreign-exchange strategist in Singapore at Credit Suisse, Switzerland’s second- largest bank.

“The upturn in global growth and the U.S. remaining on hold on interest rates should encourage inflows,” said Goh. “Indonesia to a certain extent, and South Korea are looking at currency appreciation as part of their policy mix to curb inflation.”

The won strengthened 5.5 percent and the rupiah 4.7 percent in the first half, while the baht declined 2.5 percent, according to data compiled by Bloomberg. They’ve since advanced 0.9 percent to 1,058, 0.5 percent to 8,536 and 1.4 percent to 30.32, as of yesterday’s closing levels.
Indonesia’s Tolerance

The rupiah reached 8,499 per dollar on June 8, its strongest level since March 2004. Global funds pumped $2.5 billion into Indonesian shares and boosted their holdings of the nation’s bonds by $5.1 billion this year. Southeast Asia’s largest economy expanded 6.5 percent from a year earlier in the first quarter, outpacing U.S. growth of 2.3 percent.

The central bank lifted its benchmark rate in February to 6.75 percent after inflation reached a two-year high of 7.02 percent in January. Consumer-prices gains have since moderated, with June data showing a 5.5 percent rate.

Bank Indonesia said last month the “continuing trend of rupiah appreciation is in line” with efforts to stem living costs, including that of imported goods.

HSBC Holdings Plc (HSBA), which had the most accurate rupiah projections in the last six quarters, predicts the currency will appreciate 3.3 percent to 8,300 in the second half of 2011.
Investment Grade

Credit Suisse expects Indonesia to win an investment grade rating, luring more foreign capital into its bonds, Goh said. Standard & Poor’s, Fitch Ratings and Moody’s Investors Service all rank Indonesia one level below investment grade, a threshold that some funds must stay above in selecting assets.

Endre Pedersen, who helps oversee $28 billion of Asian bonds as the managing director of fixed income at Manulife Asset Management in Hong Kong, says the rupiah is his top pick among regional currencies.

“Asian currencies will continue to perform well relative to the G3,” he said, referring to the dollar, euro and yen. Pedersen manages the Manulife Global Fund-Asian Total Return Fund, which returned 4.2 percent this year, beating 86 percent of its peers, according to data compiled by Bloomberg. Read More