Singapore stalks Tokyo to be Asias top currency hub

Aug. 29 | Updated: Aug 30 2006, 05:30am hrs
Singapore, a city-state with gross domestic product one 40th that of Japan, is poised to overtake Tokyo as Asias 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 worlds 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 Singapores 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.

Trading in Chinas yuan increased more than fivefold from 2001 to 2004, and volume in the Indonesian rupiah jumped 283 percent, according to the Basel, Switzerland-based BIS. Global currency trade expanded 36% in constant exchange-rate terms in the same period.

Investor speculation China will allow the yuan to strengthen faster is fueling bets on the currency, which today rose to the strongest since a peg to the dollar was scrapped last year. The Group of Seven industrialized nations in April told China to let the yuan appreciate to narrow lopsided trade flows. The yuan has gained 1.83% since the peg ended and it was revalued 2.1% on July 21, 2005.

Favorable Location

Singapores 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 cant 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 Singapores 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 dont have to pay taxes on the fees they earn.