Money managers for Asia’s wealthy families are telling clients to buy U.S. dollars as a rally this year in regional currencies begins to sputter.
Credit Suisse Group AG is advising its private-banking clients to bet the greenback will gain versus a basket of peers that includes the South Korean won, Taiwan dollar, Thai baht and Philippine peso. UBS Group AG said investors should buy the currency against the Singapore dollar and yen. Stamford Management Pte, which oversees about $250 million for Asia’s rich, urged clients to buy the U.S. dollar each time it falls below S$1.35.
The Monetary Authority of Singapore’s unexpected easing on April 14 has fueled speculation that other policy makers, concerned about a worsening global economic outlook, will follow suit. A gauge of 10 Asian currencies excluding the yen has fallen 0.2 percent this month. The Bloomberg-JPMorgan Asia Dollar Index climbed 1.9 percent in the first three months of the year, the first gain in seven quarters, as traders adjusted bets on the timing of U.S. interest-rate increases.
“We see good opportunity now to hedge against U.S. dollar strength after the strong rally in Asian currencies in the first quarter,” said Koon How Heng, senior foreign-exchange strategist at Credit Suisse’s private banking and wealth management unit in Singapore. “There are risks that other Asian central banks may follow up with some more easing in the second half if their respective growth outlooks deteriorate further.”
The prospect of renewed weakness in the Chinese yuan and two interest rate increases by the Federal Reserve in the second half of the year will boost the greenback, Heng said.
Singapore’s central bank said last week it would seek a policy of zero appreciation against an undisclosed basket of currencies, returning to a neutral stance it adopted in the global financial crisis in 2008. It cited “a less favorable external environment” in its policy statement, two days after the International Monetary Fund warned of the risk of negative shocks to the global economy.
Policy makers in New Zealand, South Korea and Taiwan will probably cut interest rates in the coming months to revive growth, said Mansoor Mohi-uddin, a strategist at Royal Bank of Scotland Group Plc in Singapore. The Bank of Japan is set to increase asset purchases and lower the deposit rate further when it sets policy on April 28, he said.
“The MAS move raises the risk other central banks become more willing to ease policy as Singapore’s economy is seen as a bellwether for Asia,” he said.
The U.S. dollar will advance to S$1.42 by the first quarter of 2017 and 122 yen in 12 months, said Kelvin Tay, regional chief investment officer at UBS’s wealth management business in Singapore. The greenback bought S$1.3517 and 108.87 yen at 6:15 a.m. in Singapore Tuesday.
“The rally in Asian currencies was overdone,” Tay said. “It wasn’t on the back of really strong fundamentals coming through.”
The greenback is set to gain to S$1.40 versus the Singapore dollar in the next few months, said Jason Wang, chief executive officer of Stamford Management. He had advised clients to buy the U.S. currency when it declined toward a nine-month low of S$1.3415 in March, saying that it was unlikely to fall below S$1.35 again this year.
“Dollar strength will continue to prevail for the next few months, which would be negative for emerging-market currencies,” Wang said. “I don’t expect any of the Southeast Asian currencies to diverge or outperform the dollar.”