Seoul: Emerging market currencies and stocks fell, halting a two-day advance, after Federal Reserve comments signalling that US interest rates could rise this year damped demand for riskier assets.
The South Korean won and Malaysian ringgit led losses among Asian currencies and the rand weakened after Fed Chair Janet Yellen said on Friday the case for tightening had strengthened, a message later reinforced by Vice Chairman Stanley Fischer, who said a rate increase in September is possible. Russian stocks slid, heading for their steepest decline in more than three weeks, while Turkish shares fell.
"Asian currencies are starting off the week on a weaker note as markets now assign higher odds of a September hike from the Fed — quite a big change from a few weeks ago when hikes were not being contemplated till late 2017 or early 2018,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. The remarks by Yellen and Fischer were "consistent with a possible hike in September.”
The MSCI Emerging Markets Currency Index dropped 0.7 per cent as of 9:25am in London. The won fell one per cent after hitting the lowest level in a week. The ringgit retreated 0.7 per cent. South Africa’s rand slid 0.4 per cent, falling for a seventh day.
China’s yuan traded near a five-week low. The exchange rate fell as much as 0.24 per cent as the Bloomberg Dollar Spot Index, which tracks the dollar against 10 peers, rose 0.2 per cent, after gaining 0.8 per cent on Friday, the steepest advance since June 27.
The odds that US rates will climb next month, as indicated by futures prices, jumped to 42 per cent as of Friday from 22 per cent a week earlier.
The MSCI Emerging Markets Index fell 0.9 per cent, after touching its lowest level since August 8. All 10 industry gauges in the benchmark measure dropped, led by health-care companies and materials stocks.
Celltrion slid 3.1 per cent in Seoul. LG Chem fell 1.9 per cent, while Korea Electric Power dropped 1.7 per cent.
The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 0.6 per cent. The Jakarta Composite Index dropped 1.5 per cent as Taiwan’s Taiex index fell 0.2 per cent.
Russia’s Micex index dropped 0.8 per cent, set for its steepest decline since August 2. Novatek OJSC fell 2 per cent. The Borsa Istanbul 100 Index fell 1 per cent as Akbank TAS retreated 1.5 per cent.
Equity markets in India, Philippines, South Korea, Sri Lanka and Vietnam saw a combined net foreign outflow of nearly $842 million last week, as Fed officials ratcheted up hawkish rhetoric. The Indian stock market had its first week of net foreign selling in nine, while Philippine equities had a back-to-back weekly net outflow after 12 weeks of net foreign buying.
"In the short term, the latest hawkish comments from senior Fed officials are not positive for emerging market fund flows,” said Chung Sung Yoon, a currency analyst at Hyundai Futures Corp. in Seoul. "For instance, we are probably going to see foreign money outflows from South Korea this week, as investors turn more cautious before the US job data.”
The US economy added 180,000 jobs in August, according to the median estimate of a Bloomberg survey before Friday’s payrolls data.
Yellen’s latest comments damped bullish sentiment that had boosted emerging-market currencies and stocks in June and July, when speculation spread that central banks were ready to expand stimulus after the UK voted to leave the European Union. The odds of a US rate increase this year were as low as 8 per cent on June 27.
The developing stocks gauge has risen 13 per cent so far this year and traded at 12.4 times of its 12-month projected earnings. That compares to a 3.5 per cent advance in the MSCI World Index, which was valued at a multiple of 16.2.
South Korea’s bonds fell, with the three-year yield rising three basis points to 1.28 per cent, and the 10-year adding two basis points to 1.45 per cent. Malaysia’s 10-year bond yield climbed five basis points to 3.6 per cent, according to prices from Bursa Malaysia.
Emerging-market dollar sovereign bonds have returned about 7 per cent in the past three months and yield an average of 4.2 per cent, according to a Bloomberg index.
"I think some investors are using this fresh talk about Fed rate as an excuse to sell and realise their gains,” said John Teja, a director at PT Ciptadana Securities in Jakarta. "The Fed rate concerns could also lead to outflows by foreign investors.”