Emerging assets fall as Fed hike nears

Kuala Lumpur - Emerging-market currencies and stocks headed toward their lowest levels in a month as the prospect of a US interest-rate increase and concern over Chinese growth sapped demand for riskier assets.

South Korea’s won fell to a three-month low and Malaysia’s ringgit weakened for the fourth time in five days as a decline in Brent crude worsened the outlook for the oil exporter.

Thailand’s baht dropped after foreign funds pulled $1bn from the country’s bonds last week as King Bhumibol Adulyadej, a source of political stability through his reign, died. Asian sovereign debt fell as a gauge of dollar strength hovered near a seven-month high.

There’s around a two-thirds chance of the Federal Reserve raising interest rates by December, according to futures contracts, threatening to reduce the attractiveness of higher-yielding assets in developing nations. China’s third-quarter gross domestic product data, due on Wednesday, will be closely watched after exports fell in September for the first time in seven months.

“The market is increasingly comfortable with the view of a December rate hikeby the Fed,” said Sim Moh Siong, a currency strategist at Bank of Singapore in the city-state. “It does not help that the trade data has been weak for China. That’s raised the concern about uncertain global demand.”

Traders saw 66% odds of a US rate increase by December on Friday, compared with 59% at the end of last month. Analysts are forecasting economic growth of 6.7% in China last quarter, the same as in the previous two periods.

Currencies, bonds

The MSCI Emerging Markets Currency Index fell 0.3% to 1 534.07 as of 07:00, near its lowest level since September 16. The won weakened 0.8% and the ringgit dropped 0.4%. Brent crude declined 0.1% to $51.92 a barrel as US producers boosted drilling amid a supply glut. The Taiwan dollar depreciated 0.4%.

Thailand’s baht fell for the first time in three days, dropping 0.1%. The nation’s military government said a delay in the king’s son taking the throne will not derail plans for a return to elections.

Investors should brace for more volatility as significant changes are likely ahead of the 2017 vote, said Mark Mobius, executive chairman of Templeton Emerging Markets Group.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, was steady after gaining 2% over the last two weeks. That’s making local-currency bonds less attractive. The yield on South Korea’s 10-year notes jumped seven basis points to 1.62%.

That on Thailand’s five-year securities rose three basis points to 1.92%.

Stocks

The MSCI Emerging Markets Index fell 0.3% to near its weakest level since September 19 following a 1.9% drop last week. Consumer-staple shares declined the most, while a gauge of real-estate equities advanced 0.8%.

Hanmi Science was among the biggest decliners on the gauge, falling 3.6% in Seoul, after Maeil Business Newspaper reported that prosecutors have started an investigation into allegations that employees of Hanmi Pharm leaded inside information.

Hanmi Science owns around 41% of Hanmi Pharm. Thailand’s Kasikornbank dropped 5%, the most in more than a year, as Goldman Sachs Group Inc. said in a note that the Thai lender’s 2017 outlook is weak.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong declined 0.3% and Thailand’s SET Index slipped 0.2% after surging 4.6% on Friday, the most in five years. South Korea’s Kospi gauge added 0.4%, while the Philippine Stock Exchange Index and Jakarta Composite Index rose 0.3%.

Democrat nominee Hillary Clinton and Republican Donald Trump face off in the third and final US presidential debate on Wednesday. Most polls show Clinton with a comfortable lead heading toward the November 8 election.

“If we talk about the Fed and the US presidential election, the general view is that Southeast Asian countries would be more insulated to these external factors compared with North Asian nations, which are more susceptible to foreign flows as their economies are more open,” said  Jason Chong, chief investment officer at Manulife Asset Management Services in Kuala Lumpur.

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