Asian FX glass is half full: HSBC
Expecting the Thai baht to end the year at 29.8 per US dollar, HSBC Global Rearch expects all Asian currencies to gain strength this year with Korean won and Philippine peso as the best performers.The baht strengthened 0.1 per cent to 29.99 per dollar as of 8.36am after reaching 29.91 earlier, the most since Sept 7, 2011, according to data compiled by Bloomberg.
In its research released today, the house said that the outlook for most Asian currencies remains positive with a broader range of funding sources emerging.
"When we go through the catalogue of events that impacted Asia negatively last year, we feel a little more comfortable in 2013," it said.
The fear surrounding the Eurozone has subsided in recent months (Chart 1). Meanwhile, China's economy continues to turn up, which should have a positive effect for Asian currencies.
"We are not suggesting that no risks remain and that developments in the Eurozone, for instance, will no longer impact Asian currencies negatively or that the US fiscal issues are not a concern. That would be misguided. But for now, we can lean towards the optimistic side and focus more on the improving trajectory of growth data rather than the obscure politics of Europe and the US," it added.
A key support for Asia currencies is a continuation of inflows into local markets encouraged by as the region's economic growth, which has navigated through a trough in the third quarter of 2012 and has started to bottom out. This should help to underpin inflows into the region's equity and bond markets, following a strong 2012.
Where relatively strong appreciation pressuresexist, it expects Asian policymakers to remain guarded, even if the suspected foreign exchange policy aim is to limit currency volatility. This suggests that gauging FX intervention and macro-prudential measures will be critical in determining the relative attractiveness of Asian currencies.
HSBC expects this year to be characterised by a "glass-half-full" approach. In this context, it should be easier to fund long Asian currency positions using the highly indebted industrialised currencies like euro, US dollar, Japanese yen and British pound sterling. This is particularly the case with ongoing balance sheet expansion by major central banks and
broadly lower volatility in financial markets
In this circumstance, it believes the overall structure of the Korean won has changed for the better. The won is expected to end the fourth quarter at 1030 per dollar, from 1,058.73 per dollar as of today.
Thanks to robust capital account inflows particularly into bonds as the market prepares for a potential sovereign upgrade of the Philippines, the peso is expected to end the year at 39.5 per dollar from 40.55 per dollar on Jan 14, the strongest level since March 2008.