B2B sfyh.comMUMBAI, India – It’s boom time in Asia, only Premal Udani, who runs an Indian apparel exporting company, says he has little to show for it.
A surging tide of foreign cash has helped drive stocks in Indonesia and the Philippines to record highs, while India’s market has been flirting with a lifetime peak, but as Udani — whose company Kaytee Corp. sells to Wal-Mart and Macy’s — knows there can be danger in plenty.
The rupee’s rise is the “final nail in the coffin,” said Udani, who also chairs India’s Apparel Export Promotion Council. “We are just trying to stay afloat and ride this out.”
With currencies in many Asian countries at export-bruising highs, policymakers in the region have started to intervene to keep their exchange rates competitive, especially as China keeps a tight rein on its yuan. Many fear a quiet trade war is brewing, fought not through tariffs but through currency.
From April to August, revenues from India’s apparel industry, which employs 24 million Indians, slid 11 percent from the same period last year, due to sluggish global demand and a strong rupee, which Udani says is helping neighboring China and Bangladesh win orders.
That’s the kind of tit-for-tat language that has people like International Monetary Fund managing director Dominique Strauss-Kahn and Brazilian Finance Minister Guido Mantega warning of a brewing currency war as countries scramble to stem currency appreciation and keep their exports competitive.
In the U.S., record low interest rates have dragged down the dollar. Because China effectively pegs its yuan to the dollar — even after promising more flexibility back in June — a weak greenback hurts China’s export competitors across Asia.
After the yen hit a 15-year high against the dollar, the Japanese government last month bought dollars to weaken the yen — its first intervention in six years. The Japanese central bank has also said it will, like the U.S. Federal Reserve, buy government bonds and other assets to lower Japanese interest rates, another way to lower the yen’s value.
So far that hasn’t happened. Instead, many countries are intervening quietly — and unilaterally — in forex markets, and some are already toying with capital controls, which Thailand and Malaysia implemented in the past to stem the tide but with mixed results.
Singapore, the Philippines, Thailand, Indonesia, Malaysia and Taiwan have all been buying dollars, according to analysts at Citigroup, Nomura and UBS.
Indonesia in July imposed a minimum holding period on foreign investment in short-term government debt to deter speculative capital, and Nomura analysts say there is a “relatively high risk” Taiwan and Thailand will introduce minor capital controls as well.
Last week, top central bank official Subir Gokarn called foreign capital flows “a potential threat,” and on Saturday the bank’s governor Duvvuri Subbarao told a panel at the International Monetary Fund in Washington that India will intervene if volatile inflows “disrupt” the economy.
“Macroeconomic fundamentals suggest the currency should be weaker,” said Banade, the Aditya Birla economist. “Inflation has been in the double digits for two years. The internal value of the rupee for the average Indian consumer is going down. How can it be that simultaneously externally the rupee is appreciating?”
In India, foreign investment in stocks and bonds is more than $30.6 billion so far this year — an all-time high — and nearly a third of it has rushed in since the beginning of September. Even more money is expected soon: There are some $12 billion worth of initial public offerings pending with the securities regulator, said Alroy Lobo, chief strategist at Mumbai’s Kotak Mahindra Group.
Net inflows of foreign money into Philippines’ stocks and bonds was 427 percent higher from January to August than last year, and foreign holdings of local currency government bonds in Indonesia, South Korea, Malaysia and Thailand rose by $44 billion in January-July this year versus $23 billion in all of 2009, according to Citigroup.
Among Southeast Asian countries, Indonesia has witnessed the most significant surge in foreign capital, UBS says. Net foreign buying of Indonesia stocks in June through August more than doubled from a year earlier, according to stock exchange figures.
Related Posts
Tags: economic recovery, economy, outlook, Stock