Hedge fund bets on Indonesia, Singapore currencies strengthening

The Indonesian currency may appreciate as much as 4 per cent in 2021. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - A macro hedge fund spun out of Millennium Management is building bullish positions in the Indonesian rupiah and Singapore dollar, betting that measures adopted by the two countries could boost their currencies.

The Indonesian currency may appreciate as much as 4 per cent this year, bolstered by its drive to become a regional electric vehicle hub, said Mr Jimmy Lim, chief investment officer of Modular Asset Management, which manages nearly US$1 billion (S$1.3 billion) of assets. In other trades, the Singapore-based firm is counting on the Singapore dollar to strengthen on a faster vaccine roll-out, while the Thai baht and Philippine peso will weaken.

Mr Lim is expecting Indonesia to see a production boom in battery-grade nickel, the metal for lithium-ion batteries most likely to face supply constraints over the next five years. Indonesia is the world's top nickel miner, with nearly a quarter of the global reserves. BloombergNEF forecasts the South-east Asian country will be able to more than triple its production capacity for high-grade nickel by 2025.

Between September 2018 and late January this year, Indonesia attracted US$22 billion of foreign direct investments in electric vehicle and battery making, 86 per cent of them yet to be finalised. To access the nickel, battery makers Contemporary Amperex Technology and LG Chem have pledged investments in the country, while Tesla is exploring plans to start an electric vehicle battery project there.

Such investments will initially raise demand for the country's currency and improve its current account, said Mr Lim. That will represent a reversal from 2020, which saw the rupiah depreciate 1.3 per cent against the greenback. The bullish bet on the rupiah may deliver a nearly 10 per cent return, inclusive of currency appreciation and extra yields from borrowing money at lower interest rates in dollars to buy the Asian currency, he added.

The rupiah is already one of the strongest Asia currencies this year, according to data compiled by Bloomberg.

Once the plants start to hire people and produce revenue, it could increase tax income and reduce the Indonesian government's fiscal burden, he said, adding that assuming demand remains stable, a smaller supply of new debt may in turn boost its sovereign bonds, which could rally by as much as 75 basis points.

His investment thesis for Singapore is based on projections that the Republic will be able to finish inoculating all adults by the second quarter, which may help it open up borders by June, ahead of Asian neighbours, Mr Lim said, citing internal estimates. The Government has pledged to vaccinate everyone by the third quarter, or at least by the end of the year.

Combined with Singapore's drive to attract family office money, it could pave the way for more capital inflows from the United States, Europe, Thailand and the Philippines. Its currency may appreciate as much as 8 per cent to 1.22 to the US dollar this year, Mr Lim said.

Mr Lim worked at BlueCrest Capital Management and JPMorgan Chase & Co before joining Millennium. Modular was spun out of Millennium at the start of 2020. Focusing on Asian fixed-income and currency markets, it has been one of the largest new hedge funds in the region in recent years. It returned around 1 per cent before fees in January.

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