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After a dreadful wobble in the final months of 2011, Asian currencies are enjoying a better time as fresh capital is attracted by the prospect of buying cheaper assets. A tentative improvement in risk appetite has stimulated demand for investment in the emerging world. The Indian rupee, which fell more than 20% vs. the dollar in the five months to end December, is up an impressive 5.1% already for the year-to-date. International investors have been especially keen to purchase Indian bonds in recent weeks. Indian equities are also in the ascendancy, up nearly 8% in local currency terms already in 2012. Separately, the Malaysian ringgit is up 3% this year and the Indonesian rupiah 2%.
It remains to be seen how sustainable this recent optimism towards Asian assets and currencies is. The key is the single currency. If confidence that Europe can ultimately repair its strained balance sheets continues to grow, then this will clearly assist global risk appetite.
