October 4th, 2010
04:46 AM GMT
Currencies are a confusing lot. "Any review of currencies is full of contradictions and paradoxes," said Mark Konyn, CEO of RCM Asia Pacific. Nonetheless, we're going to give it a go. Konyn gives me a good guide as to what's going on in the Asia-Pacific region.
By now, we all know that China's yuan is under the microscope for being dramatically undervalued in order to make Chinese exports cheaper. But Konyn points out the yuan is not the only undervalued Asian currency against the US dollar. In fact, several other emerging markets have cheap money. The only difference is these countries are starting to allow their currencies to appreciate while staying undervalued. Konyn believes the message is two-fold:
1) Foreign investors are still welcome but they'll have to pay more to buy assets in these markets.
2) These emerging markets are focused on improving their domestic spending power rather than relying on exports.
So what countries are we talking about?
Thailand, Malaysia, South Korea, Singapore and India
Why are their currencies rising? Konyn summarizes each country's situation:
Thailand – the Thai baht has appreciated 8.5 percent so far this year because of remittances, a trade surplus and foreign investment.
Malaysia – the government's planned privatization agenda, the reclassification of Malaysia from "emerging" to "advanced emerging," and strong direct foreign investment.
South Korea - the won has appreciated 5 percent since August because of its current account surplus (surplus from trade in goods and services) has exceeded expectations.
Singapore – Strong capital inflows, good economic fundamentals and a monetary authority committed to overall tightening that will drive appreciation. Singapore uses the exchange rate to manage inflation.
India - the rupee has hada strong rally the past 15 months because of strong inflows of foreign investment. However, Konyn believes the rupee will lose ground by the end of the year because of a few warning signs: India's high inflation rate and its current account deficit (it imports more than it exports).
Japan is the big paradox in Asia. The yen is overvalued and the government is having a tough time pulling it down. The government intervened on September 15 by selling billions of dollars worth of yen, but the impact has been slight.
"Despite the obvious economic problems, international investors have viewed the yen as a safe haven in the current circumstances. Unfortunately, this has pushed the yen higher," Konyn said.
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