SINGAPORE, Nov 9: Asia’s foreign exchange reserves, excluding China, fell for a second consecutive month in October as foreign cash poured out of regional equity markets, analysts said.
Currency reserves in Japan, Taiwan, Hong Kong, Singapore, Malaysia, the Philippines and Pakistan dropped slightly and reserves in the region generally were expected to ease further in the months ahead.
Asian foreign exchange reserves, excluding China, fell by $4.9 billion in October to stand at the end of the month at about $1.87 trillion. China releases reserves data at the end of each quarter, so there are no figures for October.
“The fall in reserves, at least for the most part, is not a function of intervention. It’s simply a function of capital outflows,” said Callum Henderson, head of currency strategy at Standard Chartered in Singapore.
“Money has been moving out of the region and more so in specific countries like India and Taiwan, for instance in October, and that has weighed on reserves to some extent.”
Worries about rising interest rates in the United States and Asia hurt regional stock markets last month. Taiwan’s main share index hit a 14-month closing low.
Taiwan’s foreign exchange reserves, the third-highest in the world, fell 0.7 per cent to $252.01 billion by the end October from $253.75 at the end of September, the island’s biggest monthly percentage fall this year.
The attraction to investors of rising US interest rates compared to much of Asia also contributed to regional capital outflows, which was reflected in the reserves data.
“Given the widening in rate spreads that we’ve seen and the slowdown in equity flows, we would expect to see some more moderate weakness in most Asian currencies with China being the exception,” said HSBC currency strategist Richard Yetsenga.
“Apart from Indonesia, Taiwan has seen about the most significant decline in reserves. That reflects to a significant degree that Taiwan is showing leakage because of the shift in interest rate differentials and this situation should persist.”
The Federal Reserve’s benchmark interest rate is at four per cent and is expected to rise further in the months ahead. Taiwan’s central bank has lifted its key rate five times since September 2004 but at 2.125 per cent is below US rates.
After falling in the last few months, Indonesia’s reserves stabilized in October, as aggressive monetary tightening by Bank Indonesia helped prop up the rupiah and lowered the need for central bank intervention to support the currency.
Analysts said the slight fall in October hardly dented the overall size of Asia’s massive foreign exchange reserves.
“Asia FX reserves are at such huge levels that such a modest drawdown over a month is not an issue. Asian countries still have such a tremendous buffer against economic shocks,” said Henderson at Standard Chartered.
