Asia in Full Throttle

China is currently holding more than US$ 800 billion of US treasuries. If a ratings downgrade takes place, China and other investors would be tempted to sell their USD bond holdings. Should the US dollar collapse, the market would probably hedge by buying metals such as gold and silver, and invest in Asian and emerging market currencies like Singapore dollar, Malaysian Ringgit, Korean Won, Thai Baht, Indonesian Rupiah, Chinese Yuan, Australian dollar, and Brazilian Rial.

Between 31 Jan – 8 July 2011 the Indonesian Rupiah climbed by about 6.15% against the USD. Between 15 Mar – 8 July 2011, the Singapore dollar climbed 5.3% against the USD. Since the Thai election on Jul 3, the Thai Baht has climbed about 2.5% against the USD. Between 2 Feb – 8 Jul 2011, our Ringgit climbed 3.1% against the USD.

On Fri 8 Jul the Bloomberg – JP Morgan Asia Dollar Index rose to a 14-year high. In the 5 days leading to July 8, global funds pumped more than USD 1.9 billion into South Korean, Thai and Indonesian equities, Exchange data has showed. The increase in demand for Asian and emerging market equities has increased the demand for its currencies.

Moral of the story: Any exporter wanting to succeed must redesign and realign its market strategy to suit Asia and the emerging markets.