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Peso to gain 4.3% in 2013, say best forex forecasters

For the first time in three years, Asia will lead a rally in emerging-market currencies as rising global trade lifts the region’s exports, according to the most-accurate foreign-exchange (forex) forecasters.

The Philippine peso will gain 4.3 percent to its highest since 1999, said Standard Chartered Plc. and Wells Fargo & Co., which tied for second-best forecasters. India’s rupee will climb 5 percent in 2013 after losing 17 percent over the past two years, according to Oversea-Chinese Banking Corp. Ltd., the best forecaster based on data compiled by Bloomberg. The forecasts would put the peso and the rupee among the top three developing-nation currencies, Bloomberg data showed.

Asia is poised to benefit as the International Monetary Fund (IMF) estimates that global trade will accelerate from the smallest increase in three years. The region, which contributed to 44 percent of the world’s economic growth last year, accounted for half of the top 10 currencies in 2010 as the world emerged from the worst financial crisis since the Great Depression.

“The global economy is a bit brighter compared to six months ago, so that bodes well for the export cycle in Asia,” Emmanuel Ng, a strategist in Singapore at OCBC, Southeast Asia’s second-largest lender, said in a January 7 interview. “We are getting signs of life out of China. It will continue to exert influence on Asian currencies.”

The Bloomberg-JPMorgan Asia Dollar Index rose to 118.63 on January 10, the highest since September 2011. Indonesia’s rupiah has gained 1.6 percent against the dollar this month, the third-most among emerging-market currencies. China’s yuan rallied to a 19-year high of 6.2124 per dollar on Monday, while South Korea’s won climbed last week to the strongest since 2011.

The rupee will appreciate to 51.9 per dollar by year-end, from 54.50 also on Monday, according to OCBC. The median forecast of 26 strategists was for the rupee to increase 3.8 percent to 52.5. The Philippine peso will strengthen to 39 per dollar, from 40.68 also on Monday, extending its 7.6-percent rally over the past year, according to Standard Chartered and Wells Fargo.

The three banks ranked the most accurate based on six quarterly predictions through December 2012 and one annual forecast made at the end of 2011. OCBC had an average margin of error of 2.86 percent, while Standard Chartered and Wells Fargo had a margin of 2.93 percent.

International trade will rise 4.5 percent this year, after increasing 3.2 percent in 2012, the slowest since the 10-percent contraction in 2009, IMF data showed. Exports accounted for about half of South Korea’s gross domestic product and 20 percent of the Philippines’s economy.

Asia’s contribution to the global growth increased from 30 percent a decade ago, according to the IMF.

Rising exports will help Asia’s developing economies grow 7.2 percent this year, compared with an average of 5.6 percent for emerging markets and 1.5 percent in advanced nations, according to IMF estimates released on October 9.

Asia’s 9.5-percent expansion in 2010 powered the global recovery as China overtook Japan as the world’s second-largest economy. The Bloomberg-JPMorgan Asia Dollar Index rallied 5.2 percent that year, the most since 1998, compared with a 4.7-percent gain in a similar gauge for Latin American currencies.

China’s export growth accelerated to 14 percent in December, the most since May, as retail sale increased in the US and economic confidence rose in the euro area, its biggest trading partner. Shipments from Taiwan climbed 9 percent, from a 0.9-percent gain in November, official data showed.

“The gradual Chinese recovery, and lessening US and European risks could promote a more favorable market environment and capital flows into Asian countries,” Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, said in a January 10 e-mail.

Foreigners bought a net $1.6 billion of Indian stock this year, more than three times the same period of 2012, as Prime Minister Manmohan Singh opened supermarkets and other industries to overseas investments, official data also showed. The net flow to the Philippines’s stock market more than doubled to $430 million.

In the bond market, the yield disadvantage of Asian securities is narrowing. The average local bond yield in Asia trailed that for emerging markets by 92 basis points, or 0.92 percentage point, on January 10, the least since November 2009, according to data compiled by JPMorgan Chase & Co.

India’s rupee will outperform as inflation slows and its 18-percent depreciation since 2010 helps reduce imports and narrow the country’s record $22.3-billion current-account deficit, OCBC’s Ng said.

Indian wholesale prices rose 7.18 percent in December, the smallest increase in three years, the Commerce Ministry said also on Monday. The Reserve Bank of India has kept its benchmark interest rate at 8 percent since April, the highest in the region after Pakistan and Vietnam, Bloomberg data also showed.

Thomas Harr, Standard Chartered’s head of Asia local markets strategy in Singapore, said that he favors the Philippine peso because the country may win an investment-grade rating and attract foreign investors.

Standard & Poor’s signaled on December 20 that it may lift the country’s “BB+” credit rating, which is one step below an investment grade, by raising its outlook to positive, citing improved governance and public finances.

“The Philippines in my view is one of the most solid stories in Asia,” Harr said in a January 7 interview. “The most important thing is a government in the Philippines [that] seem to be committed to do the right thing: Stimulate investments, maintain a solid fiscal position and try to deal with corruption.”

Policy-makers in Asia are taking measures to stem the currency rally. Bangko Sentral ng Pilipinas imposed limits on currency forward positions at banks on December 26 to curb peso appreciation that threatens exports and remittances from overseas Filipino workers, the biggest sources of foreign exchange for the Southeast Asian nation.

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