Asian Currencies Post Weekly Drops as Europe Woes Spur Outflows

May 22 (Bloomberg) -- Asian currencies slumped this week, with India’s rupee and Malaysia’s ringgit sliding the most since the 1990s, as investors dumped emerging-market assets on concern Europe’s debt crisis will derail the global economic recovery.

The Bloomberg-JPMorgan Asia Dollar Index dropped the most since February 2009 even as reports showed economic growth accelerated in Singapore and Taiwan. Share markets added to losses yesterday after U.S. data cast doubt on the strength of a recovery in the world’s largest economy. Governments in Europe are cutting spending and raising taxes as they struggle to reduce budget deficits that are straining finances.

“It’s very much driven by the European situation and this is causing broad-based position liquidation in Asia,” said Thio Chin Loo, a senior currency analyst in Singapore at BNP Paribas SA. “The decline in Asian currencies is not due to economic fundamentals but due to reduction in risk across all markets.”

The rupee fell 3.6 percent to 46.92 in Mumbai, the biggest weekly loss since October 1995, according to data compiled by Bloomberg. The ringgit declined 3.5 percent to 3.3165, its worst performance since the Asian financial crisis in 1998. The Philippine peso dropped 3.9 percent to 46.50, the most in nearly a decade.

The Asia Dollar Index, which tracks the region’s 10 most- traded currencies excluding the yen, dropped 1.6 percent this week and the MSCI Asia-Pacific Index of regional shares slid almost 7 percent.

‘Must De-Risk’

“There’s only one thing to do; you must de-risk,” said Marcelo Ayes, a senior vice president at treasury of Rizal Commercial Banking Corp. in Manila. “The crisis in Europe may now require a global solution. Over time, the only assets that may benefit from this crisis are gold and U.S. Treasuries.”

Yuan forwards reached an eight-month low on speculation China will defer any appreciation in the currency until the turmoil in financial markets sparked by Europe’s debt crisis has settled. The contracts reflect bets the currency will strengthen 1.3 percent in the next 12 months from the pegged rate of about 6.83 per dollar. Against the euro, the yuan has appreciated 15 percent this year.

China’s central bank may delay raising borrowing costs, revaluing the exchange rate and implementing property taxes amid deepening woes in Europe, BNP Paribas analysts Chen Xingdong and Isaac Meng wrote in a research note.

Yuan Policy

The U.S.-China Strategic & Economic Dialogue will be held in Beijing May 24-25. China’s Assistant Finance Minister Zhu Guangyao said May 20 the Asian nation won’t succumb to external pressure and will modify its currency based on the economic situation.

“The global uncertainties mean China may delay the tightening,” said Nizam Idris, a currency strategist with UBS AG in Singapore. “I seriously don’t think the appreciation will happen anytime soon.”

Overseas investors have pulled more than $9 billion from stock markets in South Korea, Taiwan, Thailand and India this month. Selling of Korean stocks was spurred by escalating tensions with the North over the March sinking of one of the South’s warships. Thai stocks were offloaded as security forces’ clashes with anti-government protesters led to deadly gunfights and arson attacks on several buildings in Bangkok.

“The political risk is still very high and it’s not the time to buy Thai assets,” said Yoshihiro Nakatani, who oversees $877 million at Asahi Life Asset Management Co. in Tokyo. “Until the situation clearly improves, we will probably see downward pressure.”

The baht fell 0.2 percent this week to 32.44 per dollar in offshore trading, Bloomberg data show. Financial markets were shut in Bangkok after May 19, when the military started enforcing overnight curfews in the capital.

Elsewhere, Indonesia’s rupiah dropped 1.6 percent this week to 9,278 per dollar, the Singapore dollar slid 1.7 percent to S$1.4078, and the Taiwan dollar declined 1.3 percent to NT$32.25. South Korea’s won slid 5.3 percent to 1,194.80, before financial markets closed yesterday for a public holiday.