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Kuala Lumpur - Emerging-market currencies fell the most in more than three weeks and stocks dropped on signs global central banks are turning hawkish, threatening the flow of funds to higher-yielding assets in developing nations.
South Korea’s won declined to a two-week low after Bloomberg News reported the European Central Bank will probably wind down bond purchases before ending quantitative easing, according to eurozone central bank officials who asked not to be identified because their deliberations are confidential.
Korean and Thai sovereign bonds fell, pushing yields to the highest in two weeks, while the Philippine and Indonesian share indexes were down the most Asia.
The prospect of less stimulus from the ECB is a double whammy for emerging markets as it comes as Federal Reserve officials talk up the chance of a rate increase this year and futures contracts show rising odds of it happening. A surge in Brent crude since the middle of last week to more than $51 a barrel is cushioning the impact on oil-exporting nations like Malaysia and Mexico.
“The big driver is the ECB,” said Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “That tends to generate what’s similar to a risk-off scenario and that tends to weaken emerging markets.”
Brent crude rose 0.9% to $51.32 a barrel, taking its gain since September 27 to 12%, as US stockpiles declined to trim a supply glut. The Mexican peso and the rand strengthened 0.2%.
Currencies, bonds
The MSCI Emerging Markets Currency Index fell 0.3%, the most since September 12, to 1 548.63 as of 07:40. The won dropped 0.4%, reaching the weakest level since September 21.
The Thai baht and Malaysian ringgit depreciated 0.3% and the People’s Bank of China cut the yuan’s reference rate by 0.12%. A gauge of the dollar against 10 peers climbed 0.6% overnight, the most in more than two weeks.
Futures contracts on Tuesday showed a 61% chance of a Fed rate increase in December, from 50% a week earlier. The ECB may start paring its bond purchases in steps of €10bn a month before quantitative easing ends next March, the eurozone officials said.
“Emerging currencies are being weighed by a combination of factors today including renewed strength in the dollar, heightened expectation of a US rate hike and broadening concern about the eurozone,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures.
The won will trade within a range of 1 111 to 1 119 a dollar on Wednesday, she said.
South Korean government bonds fell, pushing the 10-year yield up six basis points to 1.51%, as inflation beat estimates to rise to the highest level in seven months in September. The yield on similar-maturity Thai notes increased six basis points to 2.2% and that on Malaysian securities climbed five basis points to 3.59%.
Stocks
The MSCI Emerging Markets Index fell 0.3% following a 1.3% advance over the previous two days. Consumer stocks dropped the most, while energy and real-estate gauges climbed. PetroChina and Cnooc were among the biggest boosts to the measure, rising 3.7% and 2.8% in Hong Kong, respectively.
Zijin Mining slid 4%t in Hong Kong, the biggest drop in a month, after the gold futures slumped by the most in almost three years. LG Household & Health Care declined 4.1% in Seoul.
The Philippine Stock Exchange Index fell 1.2% as data showed inflation beat estimates to rise to an 18-month high in September. Faster inflation when oil prices are rising is raising concern consumer purchasing power will be eroded, said Nescyn Presinede, a trader at Rizal Commercial Banking in Manila. The Jakarta Composite Index declined 1.3% and Taiwan’s Taiex gauge lost 0.2%.
The Hang Seng China Enterprises Index of mainland companies listed in China rose for a third day, by 0.8%, buoyed by increased access for mainland funds and a stabilising Chinese economy.
“The tightening monetary policies by some central banks is probably necessary,” said Namchai Techaratanawiroj, head of research at LH Securities in Bangkok. This should be good for the market in the longer term as it indicates their economies are on a recovery path, but there will be some knee-jerk reaction in the short term, he said.
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