By Lilian Karunungan
Malaysia’s ringgit and the Singapore dollar led the declines as the MSCI Asia-Pacific Index of regional shares slumped to a 10-week low. The U.S. dollar rose to an eight-month high against the euro as the cost to protect Portugal and Greece’s debt from default reached a record. European Union Monetary Affairs Commissioner Joaquin Almunia said this week that the two nations’ external funding needs are “big.”
“It’s a flight to quality with the sell-off in equities and risky assets,” said Sim Moh Siong, a currency strategist at Bank of Singapore, a private banking unit of Southeast Asia’s second-biggest lender Oversea-Chinese Banking Corp. “It’s broadening out to developed and emerging markets and the longer the problem lingers, the greater the risk of contagion.”
The ringgit dropped 1 percent for the week to 3.4470 per dollar as of 4:40 p.m. in Kuala Lumpur and reached 3.4540 today, the lowest level since Oct. 6, according to data compiled by Bloomberg. The Singapore dollar lost 1.3 percent to S$1.4233 and touched S$1.4241, the weakest since September. The won slid 0.7 percent to 1,169.45 and the Indian rupee declined 1 percent to 46.6313.
Fund Outflows
Asian currencies extended losses this week as the deficit woes in Europe added to concern that China’s monetary tightening will curtail an economic recovery and interrupt a pickup in trade. The cost to guard against a default on European sovereign debt exceeded that of U.S. investment-grade companies for the first time, Bank of America-Merrill Lynch analysts wrote in a report yesterday.
The MSCI Asia-Pacific Index dropped 2.6 percent today for a third weekly decline. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-actively traded local currencies against the greenback, slid 0.4 percent from Jan. 29 and reached the lowest level for the year.
Emerging-market equity funds lost $1.6 billion in the week ended Feb. 3, the biggest outflow in 24 weeks, as earnings and Greece’s debt woes raised concerns that the global recovery may falter, according to Cambridge, Massachusetts-based research company EPFR Global.
‘Payback Time’
The ringgit slumped to the weakest level in four months, the South Korean won fell to a six-week low, and Taiwan’s dollar dropped to the lowest in five weeks as stocks tumbled worldwide. The euro declined as much as 0.5 percent to $1.3667 against the greenback and last traded at $1.3689.
Overseas investors dumped shares in Taiwan this week and sold more than they bought in Korea today, halting three days of net purchases.
“This is basically payback time for the rescue of the global economy last year, which was through government over- spending,” said Dariusz Kowalczyk, chief investment strategist in Hong Kong at SJS Markets Ltd. “Because of exposure to exports and high foreign debt, the Korean won is vulnerable to what’s happening with European sovereign credit.”
Foreign investors sold more Taiwan stocks than they bought for an 11th day today, the longest streak since February 2009, sending the local currency to a low of NT$32.187, the weakest level since Dec. 31. It is down 0.6 percent for the week.
“Dollar strength will continue into next week because of the debt crisis in Europe,” said Henry Lin, a currency trader at Taiwan Shin Kong Commercial Bank in Taipei. “Investors want to hold more cash instead of bonds and stocks.”
Elsewhere in Asia, Indonesia’s rupiah fell 0.7 percent this week to 9,410 per dollar. The Thai baht was little changed at 33.21 versus 33.19 at the end of last week. The Philippine peso slipped 0.1 percent to 46.545. China’s yuan was little changed at 6.8274.
To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.
Last Updated: February 5, 2010 04:01 EST
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