International | Nov 25 2008
By Chris Shaw
Aside from the Chinese yuan and the Hong Kong dollar, 2008 has seen all the Asia ex-Japan currencies weaken considerably against the US dollar. This matches the trend among the currencies in the region during the 2000/01 global economic downturn.
One difference this time around, according to Standard Chartered, is that at the start of the decade these currencies fell ahead of the downturn in equity markets. This time around the fall has come after global equity prices collapsed.
But there are a number of other different elements in the currency falls this cycle. The group points out back in 2000/01 the US and Japan went through relatively mild recessions, while the UK and Europe recorded weak growth, whereas this cycle the whole developed world is currently in a recession.
The trigger for the fall in the region’s currencies are also different, as the 2000/01 downturn was sparked by the collapse of the dotcom bubble, while the latest downturn has been driven by the slide in the US property market and the flow through into what has become a global banking and credit crisis. The different nature of the downturn means the fall in the currencies has been far sharper and far faster this time.
In looking for a possible silver lining, the group points out the fact the decline has been quicker this downturn could suggest the length of the downturn will be shorter and the Asian currencies will find a new floor more quickly. But offsetting this is the fact the global economic outlook is much worse at present, which the group takes to mean the sizes of the currency falls could be larger this time around.
This seems to be the case, as the group points out in 2000-2002 the largest falls were between 14.2% and 32.3% and were in the Indonesian rupiah, Philippine peso, Thai baht and South Korean won. This time the largest falls have been in the won, the rupiah, the Philippine peso and the Malaysian ringgit, with falls to date of between 17.2% to 38.2%.
As well, some of the other currencies in the region have already experienced falls in the past eight months in excess of their total falls between 2000 and 2002. Given the worst of the economic growth impact on the region is expected to be felt in the first half of 2009, in the group’s view, there doesn’t yet appear to be the conditions in place to drive any significant recovery in the region’s currencies.
