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Kuala Lumpur - A gauge of emerging-market stock volatility was near the highest level since June as traders debated whether the Federal Reserve and Bank of Japan (BoJ) will adjust policy at meetings this week.
The MSCI Emerging Markets Index has changed direction in each of the past three weeks as the probability the Fed will raise interest rates at its September meeting has swung between 18% and 42% during the past month.
Developing-nation stocks climbed to the highest in a week Monday as concern eased that US policy makers will move at their September 20 to September 21 meeting. Taiwan’s dollar strengthened for a fourth day, while Malaysia’s ringgit declined.
“The market is waiting for the decision from both the Fed and Bank of Japan,” said Jeffrosenberg Tan, director for investment strategy at PT Sinarmas Sekuritas in Jakarta.
“I don’t expect the Fed would go against the consensus and they will keep the rate steady this time around. Some investors might have positioned their portfolio yesterday, but for me I would rather take some profit off the table and wait for the certainty of the outcome.”
Stocks
The MSCI Emerging-Market Index was little changed as of 07:47 on Tuesday. The gauge advanced for three months through August before its rally stalled in early September. It slid 2.6% last week before rising 1.4% on Monday.
The J.P. Morgan Emerging Market Volatility Index was at 10.84 after closing at 10.88 last Friday, matching the highest level since June 27. It has climbed from a one-year low of 9.43 in July as uncertainty about the outlook for the global economy has increased.
Equity indexes were mixed in early trading in Asia. Thailand’s benchmark index declined 1.3% and Pakistan’s fell 0.6%, while the Philippine Stock Exchange PSEi Index rose 0.7%.
Fed officials in recent weeks have signaled the market is underpricing the possibility of higher rates as soon as this month. US policy makers began the year projecting four increases, yet have remained on hold because of mixed economic data and signs global growth is slowing. There is 20% they will move this week, according to data compiled by Bloomberg based on fed fund futures.
The BOJ will end its own policy review Wednesday and decide how much, if any, extra stimulus is required to push up inflation to its 2% target.
Currencies
The MSCI Emerging Markets Currency Index was also little changed Tuesday after rising 0.4% on Monday.
Taiwan’s dollar strengthened 0.3% amid optimism Apple Inc.’s latest iPhone model will prove popular, boosting earnings for the island’s suppliers.
The Malaysian ringgit dropped for the fifth time in six days as lower oil prices damped the outlook for the energy exporting economy. The currency declined 0.2%, extending this month’s decline to 2.3%.
“Investors are staying cautious ahead of the Fed and BOJ,” said Timothy Peng, a currency trader at INTL FCStone in Singapore. “The ringgit remains under pressure due to weak oil prices.”
