BLBG: Sell Singapore Dollar Forwards Versus the Korean Won
Investors should sell the Singapore dollar against the won via three-month non-deliverable forward contracts, Morgan Stanley said, predicting Korean initiatives to spur economic growth will help the nation’s currency rebound.
The won, Asia’s worst performer last year, will be one of the first currencies to recover when the global economic slump starts to bottom out, strategists including Yilin Nie and Gracie Chen wrote in a report published yesterday.
Singapore will be “particularly vulnerable” to the global slowdown in growth and foreign trade, adding downward pressure on its currency, the report said. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.
Singapore’s gross domestic product declined an annualized 16.9 percent in the fourth quarter, the biggest drop on record, according to official figures on Jan. 21. Non-oil domestic exports, excluding re-exports, account for more than 70 percent of the city-state’s economy.
South Korea’s economy shrank 5.6 percent last quarter, the biggest decline since the Asian financial crisis a decade ago, the central bank said yesterday. The nation’s overseas sales are equivalent to about 40 percent of GDP.
Weakening Currencies
The Singapore dollar slid 0.7 percent to S$1.5041 against the U.S. currency as of 12:03 p.m. local time, headed for a fourth straight weekly drop. It’s lost 4 percent so far this month, after declining 0.5 percent in 2008.
South Korea’s won declined 1 percent from yesterday to 1,391.65 versus the greenback, set for a fifth weekly loss. It’s down 9.5 percent this year, following a 26 percent slide in 2008 that marked its worst annual performance in more than a decade.
Forwards contracts show traders are betting the won will gain 0.1 percent to 1,390.5 a dollar in three months and the Singapore dollar will rise 2.2 percent to S$1.4719, according to data compiled by Bloomberg.
To revive its economy, South Korea has allocated about 140 trillion won ($102 billion), or 15 percent of GDP, in extra liquidity, tax cuts and stimulus spending. In addition, the Bank of Korea has cut its key interest rate five times since October to spur spending at home.
