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SINGAPORE: Asian currencies will need to appreciate in the post-financial crisis global landscape. According to investment house Schroders, this will be key to sustaining the global economic recovery.
It believes that stronger Asian currencies will help boost overall global consumption and investments.
China is one of the world's largest consumer markets and they are among the Asian consumers encouraged to spend more to help boost their domestic economies.
Analysts said another way to make them splash their cash may be an appreciation of their currencies.
This will give them greater spending power, drive demand for imports from Western countries and make overseas investments more attractive.
European countries will in turn gain competitiveness through demand for their cheaper goods, and drive production
Theoretically, Western countries with a relatively weaker currency will find imports more expensive.
However, Schroders said this is not an issue as their focus is now on fixing their balance sheets instead of consumption.
Al Clark, head of Multi-Asset, Asia Pacific, Schroders, said: “The first thing that needs to occur is for the US consumer to repair their balance sheet so they need get into a healthy position to start worrying about consuming. To get into a healthy position, they need to let their currency depreciate, and save more rather than spend."
But there are concerns that inflationary pressures may build up and some countries may move to stop their currencies from rising too high.
Schroders warns that this may hurt investor sentiment.
Rupert Rucker, head of Product, Asia, Schroders, said: “Certain emerging markets will not suffer the appreciation of their currency of a certain level and they implement policies to try and dissipate that and make sure it doesn't happen and those policies will affect potential investment.
“We saw in Brazil an indication of that. Actually it was a fairly benign policy but that's an indication of policies that come out of nowhere that we were not anticipating.
“Brazil implemented a two per cent tax on equity and fixed income inward investments. Because they were worried about the appreciation of their currency, and I think to a certain degree that's sensible but other countries could take worse policy decisions than that which could affect investor appetite.”
Schroders believes there are opportunities for investors to benefit from the potential upside in currencies especially those from emerging Asian markets. - CNA/vm
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