Emerging assets pare best weekly gain in month on dollar

Seoul - Emerging market currencies and shares fell, trimming the biggest weekly gains in a month, after Mario Draghi’s comments on quantitative easing (QE) sent the euro tumbling against the dollar and a drop in crude prices curbed demand for higher-yielding assets.

South Korea’s won was the worst performer as the MSCI Emerging Markets Currency Index slid a day after the European Central Bank (ECB) president indicated stimulus won’t come to an “abrupt” end and better-than-expected US data triggered broad dollar buying.

Developing-nation equities retreated as Thursday’s drop in oil prices, the biggest for three weeks, prompted investors to cash in gains.

“Comments by ECB president Mario Draghi on QE and tapering has weakened the euro and stronger dollar momentum is developing,” said Jeon Seung-ji, a currency analyst at Samsung Futures in Seoul. “This in turn is pressuring emerging Asian currencies broadly, including the won.”

The odds that the Federal Reserve will increase interest rates this year rose to 68% after the central bank’s Beige Book economic survey pointed to a “mostly positive” outlook.

A report on Thursday showed existing US home sales climbed at the fastest pace in six months in September, while a manufacturing gauge beat economists’ estimates.

Currencies

MSCI’s developing-nation currency gauge slid 0.3% as of 10:14, paring its weekly gain to 0.2%, still the most since the period ended September 23. The won tumbled 0.7%, the biggest loss since October 13. The zloty, Hungarian forint, Turkish lira and Philippine peso weakened at least 0.5%.

China’s yuan fell to a six-year low, accelerating declines as policy makers signaled tolerance for further weakness amid the greenback’s strength and a tumble in exports. The People’s Bank of China weakened its daily reference rate by the most since August.

“We think Asian currencies will likely lose further ground in the near term against the US dollar,” Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking in Singapore, wrote in a chat message. “Main reasons being expectations the Fed will raise interest rates in December, with the market increasingly pricing in the rate hike; second yuan depreciation.”

Stocks

The MSCI Emerging Markets Index of stocks fell 0.3%, halting three days of gains. The gauge is on course for a 1.5% advance this week. Delta Electronics (Thailand) decreased 4.3% in Bangkok, after it was downgraded to “sell” by SCB Securities Department store operator Shinsegae slumped 3.7% in Seoul.

Equities have gained this week on signs US monetary policy will remain accommodative and after Chinese economic growth met estimates, boosting demand for riskier assets. Fed chair Janet Yellen on October 14 outlined the argument for keeping monetary policy easy without taking an interest-rate hike off the table this year.

China reported 6.7% expansion in the third quarter, the same as in the previous two periods.

“The drop in oil prices triggered some profit-taking that is expected owing to the strong run-up earlier in the week,” said Rafael Palma Gil, portfolio manager at Rizal Commercial Banking in Manila. Markets “reacted positively to data showing China’s economy is stabilizing and the signal that US tightening will remain gradual.”

The Philippine Stock Exchange Index declined 0.8%. South Korea’s Kospi index and India’s benchmark equities gauge both decreased 0.4%. The Shanghai Composite Index and Thailand’s SET Index rose at least 0.2%. Stock trading was canceled in Hong Kong as Typhoon Haima lashed the financial center.

Russia’s Micex Index declined 0.5%, its third day of declines. Magnit PJSC, a food retailer, fell 1.9% after Magnit PJSC, a food retailer, fell 1.2 percent after earnings missed estimates.

South Africa’s FTSE/JSE Africa All Share Index rose 0.5%, poised for its steepest weekly advance since August.

Bonds

China’s 10-year sovereign bond yield declined to a record low, amid concern that property market curbs and moves to reduce leverage in the financial system will weigh on economic growth.

The yield on government bonds due in a decade fell to 2.635%, the lowest level since Bloomberg started compiling ChinaBond data in 2006.

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