Posts from — August 2006

By Yumi Kuramitsu
Aug. 29 (Bloomberg) — Singapore, a city-state with gross domestic product one 40th that of Japan, is poised to overtake Tokyo as Asia’s biggest currency trading center, fueled by investor demand for emerging-market assets.
China and India are luring funds from Japan as investors seek bigger returns in the world’s fastest-growing major economies. Restrictions on currency transactions in the two countries mean that most of the trades have to be done in offshore financial centers.
“The fastest growing sector of the foreign-exchange market is in emerging Asia, and trading for much of that is based here,” said Callum Henderson, head of currency strategy in Singapore at Standard Chartered Bank Plc, which makes two-thirds of its profit in the region. “Prospects for Asian currency volume growth still look extremely good.”
Daily volume in Singapore’s spot market, transactions for delivery in two days, averaged $65.1 billion in April, just behind the $66.1 billion traded in Tokyo, surveys sponsored by the two central banks show. Singapore trading stood at $42.5 billion two years earlier, compared with $53 billion in Tokyo, according to a survey by the Bank for International Settlements.
The volume of trading in Chinese yuan increased more than fivefold from 2001 to 2004, and trading in the Indonesian rupiah jumped 283 percent, according to the Basel, Switzerland-based BIS. Global foreign exchange trading expanded 36 percent in constant exchange-rate terms in the same period.
Investor speculation that China will allow the yuan to strengthen faster is fueling bets on the currency. The Group of Seven industrialized nations in April told China to let the yuan appreciate to narrow lopsided trade flows.

Favorable Location

Singapore’s location in Southeast Asia and its diverse population are helping it take advantage of the opportunity. English-speaking residents from China, India, Malaysia and Indonesia provide a workforce with the local knowledge and language skills to do business throughout the region.
“Japan is on the edge of Asia, so you can’t cover the other markets that well,” said Rajeev De Mello, the Singapore-based head of Asia fixed-income investment at Bank Pictet & Cie., which
has $28 billion of debt under management. “Singapore has a talent pool. They have people from everywhere here.”
De Mello, 40, chose Singapore over Hong Kong and Tokyo when he moved to Asia from Geneva in December. The city-state offered benefits for his wife and three children, including the quality of housing and the choice of international schools, he said.
“We saw a `black and white’ colonial house for the first time,” he said, referring to the traditional homes built by Singapore’s British rulers in the 19th century. “It was like, `Wow! I have to live in one of these.”’

Luring Money Managers

Singapore is also offering incentives to attract hedge funds and other money managers as it seeks to expand the financial industry to spur economic growth. Fund managers with at least S$5 billion ($3.2 billion) of assets don’t have to pay taxes on the fees they earn.
The number of hedge funds in the city grew by 51 percent to 109 last year, and assets tripled from a year earlier to more than $10 billion, according to the Monetary Authority of Singapore.
While Singapore may soon become Asia’s biggest currency center, Tokyo isn’t going to fade away.
The growth of Japan’s economy after three recessions in the past 16 years will lead to an increase in currency trading in Tokyo, said Tetsuya Inoue, deputy director general of financial
markets at the Bank of Japan. The current expansion will become the longest since World War II by November, surpassing the so-called Izanagi boom of 1965 to 1970, a 57-month period of growth named after an ancient god.

Financial Regulations

“With the economic recovery, not only corporations but also investors, including retail investors, are increasingly active in foreign exchange,” Inoue said. “We have seen foreign banks
returning to Tokyo as a result.”
Singapore still may attract more investors because its financial regulations are less cumbersome than Japan’s. The corporate tax rate in Japan is 40.7 percent, the highest in Asia
and more than double Singapore’s 20 percent rate, according to an annual survey by accounting firm KPMG LLP.
“Fund managers have cited Singapore’s central location in Asia, transparent tax and clear regulatory regimes as important factors,” said Ong Chong Tee, deputy managing director in charge of monetary policy at the Monetary Authority of Singapore. “All the top private banks already have a presence here.”
Toshio Aoki, chief executive officer of fund management company Stat Arb Ltd., started trading in Singapore two years ago. To buy gold and Nikkei stock exchange futures in Tokyo, a company is required to set up two separate entities, each with its own license, capital and employees, Aoki said. In Singapore, when a company’s capital is below a certain amount, it just needs to register.
“The biggest reason I opened up in Singapore rather than Tokyo is the regulations,” said Aoki, who declined to disclose how much his firm manages. “It’s just very difficult to meet the
requirements in Japan.”

–With reporting by Hiroko Komiya in Tokyo, Jake Lee in Hong Kong
and Wes Goodman in Singapore. Editors: Grose-Hodge (wsm)

To contact the reporter on this story:
Yumi Kuramitsu in Hong Kong at (852) 2977-6623 or
ykuramitsu@bloomberg.net;

To contact the editor responsible for this story:
Tony Barrett at (86) (10) 6505-9786 or
tbarrett4@bloomberg.net.

It is the third day in a row of the real weakening against the dollar. After gaining over 14% in the last year real fell 0.4% to 2.1604 from 2.1516 per dollar. Fundamentals are breaking down in Brazil as the unemployment rate is it it’s highest in over a year. The budget surplus also came in less than expected.

With hyperinflation in Zimbabwe, the Reserve Bank of Zimbabwe was forced to devalue the Zimbabwe dollar. Three zeros are being cut off the country’s banknotes, and August 21st was the last day to turn in the old currency. Many problems arose as people could only cash in 5 billion Zimbabwe dollars (~$200 value). The rest of the money was confiscated. Because of this, the past week citizens went on a spending spree buying anything of tangible value. Fuel prices doubled. For more information, take a look at the article below.

http://www.isn.ethz.ch/news/sw/details.cfm?ID=16561

EUR/JPY pushes up 160 pips since Friday morning (100 pips this morning) to 149.73, making a new all-time high. Most currencies rallied against the dollar, but the Bank of Japan said it will move slowly before hiking rates again. This along with rising oil costs keep the Yen down.

Starting at approximately 2:30 AM EST, after details were leaked about the new Convergence Programme report due to be submitted to the EU on September 1, the EUR/HUF moved 470 pips to 279.20, retracted and moved up to a new high at 279.61. The report is worse than expected with public debt likely to stay high until the end of the decade.

Dollar-Yuan falls 200 pips

USD/CNY fell .25% from 7.9885 to 7.96865

The Yuan rallied against the dollar like other currencies did, but abnormally far as it appears there was no central bank intervention.