By Anjani Trivedi
Asian currencies are charging higher against the U.S. dollar and
outperforming other emerging markets as global investors send fresh
funds into the region's fast-growing economies.
Leading the pack is the Malaysian ringgit, which has rallied 4%
to touch a 10-month high last week, while the Indonesian rupiah has
strengthened 3.9% after losing about a fifth of its value in 2013,
and the Korean won is near a six-year high.
The gains come as economies across the Asia region show broad
signs of improving, especially as manufacturing ticks up and trade
imbalances improve. That is in contrast to the U.S. and Europe,
where the slow-growing economies are mixed, while the Middle East
has been rocked by political turmoil, Eastern Europe is plagued by
tensions with Russia and Argentina is in default.
"The countries [in Asia] we have been more comfortable to hold
risk positions on are those that we expect to be less correlated to
the global environment," said Kenneth Akintewe, a senior investment
manager at Aberdeen Asset Management in Singapore, which has $551.4
billion under management.
Mr. Akintewe recently raised his holdings of Sri Lankan bonds
denominated in the local currency, which he says have performed
well, and also Indian rupee bonds.
It is a sharp reversal from last year when the U.S. Federal
Reserve warned about the end of its bond-buying program, sending
Asian and other emerging-market currencies plunging. Investors then
fled on worries over poor fiscal and economic conditions, and
jumped into the safe haven of the U.S. dollar.
India and Indonesia, among the worst hit last year, have now
received $52 billion so far this year, almost one third of the
$176.9 billion that has flown into global emerging markets. That
compares to the $195 billion received during all of last year,
according to data from the Institute of International Finance.
Asian currencies are also holding as the U.S. dollar broadly
rallies against most other countries amid expectations the Fed will
eventually raise rates that would boost yields in the U.S. Other
emerging markets are mostly faring worse, with the Turkish lira
close to its weakest level in four months and the South African
rand down 1.8%.
Analysts at Bank of America Merrill Lynch say the "decoupling"
of Asian currencies from global-currency movements has been driven
by a wide range of forces in the region. Some central banks are
acting to support their currencies, elections in India and
Indonesia have brought business-friendly governments to power, and
U.S. Treasury yields have dropped.
To be sure, analysts and investors say these Asian markets are
still vulnerable to outflows should risk aversion rise or economic
reforms in the region don't pick up pace. Chief among the worries
is when the Fed will raise rates.
"There is still uncertainty as to the degree of the rate hike or
when the rate hike is going to be enacted. Nobody is massively
pricing that in yet," said Sacha Tihanyi, a senior currency
strategist at Scotiabank in Hong Kong. "That doesn't mean it's not
going to get choppy and violent when the signal does come, whenever
it does come."
For now though, concerns about the Federal Reserve cutting back
its easy-money policies have eased, while the European Central Bank
and Bank of Japan are also looking to continue easy-money policies,
sending money back into high-yielding markets.
"Even if the Fed stops expanding its balance sheet, you've got
the two other large central banks expanding their balance sheets.
You've got a lot of money printing going around," said Rahul
Chadha, Chief Investment Officer at Mirae Asset in Hong Kong.
Investors say the move into Asia isn't just a chase for yield
either, and that they are still being discriminating. Mr. Chadha
says "quality cyclical" stocks that move in tandem with ups and
downs in the economy have performed well, pointing to the auto,
information-technology and pharmaceuticals sectors in India. He
also says that overly indebted companies and junk equities have
remained weak.
Mr. Chadha's fund has a large, overweight position in Indian
equities, that is, 23% of their regional fund.
Write to Anjani Trivedi at anjani.trivedi@wsj.com