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Free Malaysia Today
3 days ago
- Business
- Free Malaysia Today
FX hedging cost drop sparks debate on Asia bond defence bets
Three-month forward implied yields for dollar-won have fallen to around 1.7% this week, the lowest level in more than two years. (EPA Images pic) SINGAPORE : A decline in currency hedging costs across Asia is fueling a debate among bond investors on whether they should fortify their portfolios with cheap protection or let the opportunity slide. Three-month forward implied yields for dollar-won have fallen to around 1.7% this week, the lowest level in more than two years, signaling plummeting hedging costs for South Korean bonds. The same gauges for currencies in Thailand, Indonesia, China and India are also below their one-year averages, according to Bloomberg calculations. Currency hedging costs are falling at a crucial time for investors funding their holdings in Asia with dollars due to elevated market volatility fueled by US policy whiplash and de-dollarisation concern. However, investors with the stomach for risk could also look for any further declines in the dollar as it would enhance returns on their local currency assets. Dollar or euro-funded investors would be more comfortable investing in Asia local-currency fixed income with currency hedges, according to Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp. 'There has been robust foreign inflows into China's Negotiable Certificates of Deposit (NCD) on the pick-up after hedging, and even if hedged returns narrow further after this, flows may still come in if diversification is the goal,' she added. An investor who hedges a long position in a one-year China NCD with a 12-month dollar-offshore yuan forward will pocket a return of 52 basis points over US SOFR, or 4.85%, according to Bloomberg calculations. 'Lower hedging costs or higher yield pickup will remain a tailwind for Asia local-currency government bonds, and is the most attractive in China and Thailand,' said Stephen Chiu, chief Asia FX and rates strategist at Bloomberg Intelligence. 'Hedging costs have fallen as US front end rates remain high, while Asia front end rates are down on easing expectations,' he added. Central banks in Indonesia, India, Thailand and South Korea have lowered their key rates by a cumulative 175 basis points so far this year while the Federal fund rate has remained unchanged over the same period. A drop in forward-implied local currency yields relative to American rates makes it cheaper for US-based investors to go short Asian currencies and long the dollar for hedging against potential foreign-exchange losses on their bond portfolios. The dollar-baht three-month forward implied yields are two standard deviations below the one-year average. The same gauge for Indonesia, China and Taiwan stands at -1.40, -1.36 and -0.53 respectively. Bank of Korea trimmed policy rates by 25 basis points today as was widely expected, while flagging the likelihood of more interest rate cuts to come, which is likely to further drag down hedging costs. May inflation data from Thailand, Indonesia, the Philippines and South Korea early next month will also set the tone for monetary policies in those nations and therefore their currency hedging costs.
Malay Mail
22-05-2025
- Business
- Malay Mail
The RM265b reason Malaysia's ringgit is about to outperform every Asean currency
KUALA LUMPUR, May 22 — The ringgit could post the strongest gains in Southeast Asia if exporters convert their foreign earnings into local currency, driven by the country's substantial foreign-currency deposits. Foreign deposits across Malaysia, Thailand, the Philippines and Indonesia have surged to US$62.2 billion (RM265 billion) as of March, approaching record levels set the previous month, Bloomberg reported. Malaysia accounts for nearly all of this growth, with its foreign deposit expansion outpacing regional peers significantly. The focus on foreign deposits has intensified as investors monitor potential currency conversions amid growing scepticism toward the US dollar due to policy and economic concerns. Taiwan's exporters demonstrated this trend earlier this month when heavy foreign-exchange sales helped their local dollar achieve its largest single-day gain since 1988. 'Acceleration in broad dollar softness may risk triggering exporters rushing to sell their dollar holdings and that cycle, if it happens, it may result in excessive local currency strength,' said Christopher Wong, a senior foreign-exchange strategist at Oversea-Chinese Banking Corp. Major Southeast Asian currencies have already rallied to yearly highs as the dollar weakened and US-China trade tensions temporarily eased. While excessive currency appreciation might concern local authorities, moderate gains could enable further interest-rate cuts by reducing depreciation pressure. The Malaysian ringgit has emerged as the second-biggest gainer among emerging market currencies in Southeast Asia this year, rising 5 per cent. Malaysian policymakers earlier urged exporters to convert earnings into ringgit more promptly to support the local currency. Malaysia's foreign deposits reached 10.6 per cent of total deposits by March, standing 1.6 standard deviations above the five-year average. Goldman Sachs strategists recommend that Asian exporters continue converting dollars to local currencies after years of accumulating dollar deposits.
Free Malaysia Today
22-05-2025
- Business
- Free Malaysia Today
Ringgit may gain most in SE Asia on exporter conversion
The ringgit became Southeast Asia's second-largest gainer this year as investors focused on firms converting foreign deposits into local currency. (Reuters pic) KUALA LUMPUR : Malaysia's ringgit stands to gain the most among its Southeast Asian peers if the nation's exporters convert their overseas earnings to the local currency, thanks to the nation's outsized foreign-currency deposits. Such deposits in Malaysia, Thailand, the Philippines and Indonesia combined have jumped to US$62.2 billion as of March, close to a record high set in the previous month, according to Bloomberg calculations. Malaysia made up almost all of it and the nation's foreign deposit growth also outpaced most of its peers. Foreign deposits in the region are coming under greater focus as investors watch for signs of companies converting them to local currencies, as market perception of the dollar sours due to concern over US policymaking and its economic outlook. Heavy foreign-exchange sales by Taiwanese exporters earlier this month helped the local dollar post its biggest single-day jump since 1988. 'Acceleration in broad dollar softness may risk triggering exporters rushing to sell their dollar holdings and that cycle, if it happens, it may result in excessive local currency strength,' said Christopher Wong, a senior foreign-exchange strategist at Oversea-Chinese Banking Corp. Most major Southeast Asian currencies have already rallied to their highest levels this year amid the dollar's decline and as a temporary trade truce between the US and China improved market sentiment. While excessive currency gains may invite the ire of local authorities, some appreciation may be welcomed as it would open the door for further interest-rate cuts by reducing the depreciation pressure on local currencies. The ringgit was the second-biggest gainer among emerging market currencies in Southeast Asia so far this year with a rise of 5%. Earlier this year, the nation's policymakers urged exporters to convert their earnings into ringgit in a more timely manner to help buoy the local currency. Malaysia's foreign deposits grew to 10.6% of the total as of March, according to latest data from the nation's central bank. That's 1.6 standard deviations higher than the five-year average. The same gauge for Thailand, the Philippines and Indonesia stood at 2, 1.3 and 1.1, respectively. Southeast Asian investors loaded up on dollar-denominated investments during a period of rising returns on US assets. The Federal Reserve's aggressive rate hike cycle in 2022 and 2023 took the upper bound of the Fed fund rate to 5.50% — higher than even the policy rates in Thailand and Malaysia. Currency returns provided another incentive, with the Bloomberg Dollar Spot Index rising 10.5% in the five years to the end of 2024. While investors have pared extreme bearishness over dollar assets seen in April — when President Donald Trump announced reciprocal tariffs and spurred doubts over the Fed's independence — the US fiscal stance is giving investors another reason to shun the greenback. 'Asian exporters should continue to convert their dollars into local currencies, after several years of building up dollar deposits,' Goldman Sachs Group Inc strategist Danny Suwanapruti wrote in a note last week. The bank favours the ringgit, Singaporean dollar, won and the Taiwanese dollar if trade deals are reached, the yuan rallies to 7 per dollar and if exporters continue to sell the greenback.
Yahoo
16-05-2025
- Business
- Yahoo
Gold Declines as Traders Book Profits on US-China Trade Optimism
(Bloomberg) — Gold (GC=F) fell to extend its weekly loss, as investors booked profits after tensions eased between the US and China this week, cutting demand for haven assets. As Coastline Erodes, One California City Considers 'Retreat Now' How a Highway Became San Francisco's Newest Park Maryland's Credit Rating Gets Downgraded as Governor Blames Trump Power-Hungry Data Centers Are Warming Homes in the Nordics NYC Commuters Brace for Chaos as NJ Transit Strike Looms Bullion fell as much as 1% to trade near $3,220 an ounce. Traders exited positions after the metal climbed in the previous session on stronger expectations for Federal Reserve rate cuts following weak US data. Progress on trade negotiations between the US and China has also sapped appetite for haven demand, adding to bearish headwinds for gold as the detente between the world's two largest economies led to a sharp rebound in risk assets this week. Gold is seeing some 'fatigue, as tariff de-escalation takes away some uncertainty, at least for now,' said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp. Still, 'rising protectionism, shifts in global supply chains, and questions around the dollar's status as a safe haven and primary reserve currency are some of those factors supporting the appeal of gold as a portfolio hedge,' he added. The precious metal remains on track for a weekly decline of about 3% and is around $280 below its all-time peak set last month. Despite that, bullion is up by more than a fifth this year, fueled by a rebound in demand for bullion-backed exchange-traded fund products, strong central bank buying and speculative Chinese demand. Spot gold was down 0.6% to $3,221.43 an ounce as of 7:25 a.m. in London. The Bloomberg Dollar Spot Index fell 0.2%. Silver (SI=F), palladium (PA=F) and platinum (PL=F) dropped. Cartoon Network's Last Gasp DeepSeek's 'Tech Madman' Founder Is Threatening US Dominance in AI Race Microsoft's CEO on How AI Will Remake Every Company, Including His As Nuclear Power Makes a Comeback, South Korea Emerges a Winner Why Obesity Drugs Are Getting Cheaper — and Also More Expensive ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
08-05-2025
- Business
- Bloomberg
OCBC's Profit Beats Estimates as CEO Wong Keeps 2025 Targets
Oversea-Chinese Banking Corp. 's first-quarter profit beat expectations, as a strong haul in wealth fees, trading and insurance bolstered tepid lending income. Net income in the three months ended March 31 was 5% lower at S$1.88 billion ($1.45 billion) from a year earlier, Southeast Asia's second-largest lender said Friday. That compares with the S$1.84 billion average estimate of analysts surveyed by Bloomberg.
