Emerging market assets extend drop on rate fears

Seoul - Emerging market assets headed for the biggest back-to-back drop since June amid speculation the US central bank is leaning toward tightening the stimulus that has supported demand for riskier assets.

The MSCI Emerging Markets Index of stocks slid 3.8% over the past two days after Treasuries fell following comments by Federal Reserve Bank of Boston President Eric Rosengren that the world’s biggest economy could overheat should policy makers wait too long to tighten.

Fed Governor Lael Brainard will speak in Chicago on Monday. The won led losses among emerging market peers after a report North Korea is preparing for another nuclear test.  

"Most investors will hold off any more buying in developing countries’ stocks with a possible interest increase in the US," said Isara Ordeedolchest, the investment strategist at SCB Securities Company in Bangkok.

"Investor sentiment toward equities is really subdued."

Stocks

The MSCI index that tracks emerging stocks dropped 1.9% as of 6:45 a.m. in London, adding to its 1.9% decline from Friday. All 10 industry groups in the developing nations’ measure fell, led by technology and industrial stocks.

Samsung Electronics Company plunged 6.6% in Seoul, poised for the biggest slide in four years, after US regulators and the company itself warned users of its Note 7 smartphones to immediately turn off and stop charging them.

Hong Kong’s Hang Seng China Enterprises Index slumped 3.5%, the sharpest decline in seven months. The gauge has risen 30% from a February low amid a flood of Chinese money flowing across the border.

PICC Property & Casualty Company dropped 5% to pace insurers lower, while Bank of Communications Company slid 4.3%.

The Shanghai Composite Index dropped 1.8%. South Korea’s Kospi Index lost 1.8%. Financial markets in Singapore, Malaysia and Indonesia were closed for a holiday.

Currencies

The MSCI Emerging Markets Currency Index slid 0.4%, as the won weakened 1%, the worst performance among Asian peers. Taiwan’s dollar fell 0.7%.

The won was poised for the biggest loss in two weeks after Yonhap News reported US and South Korean intelligence authorities assessing there is high chance of North Korea will conduct an additional nuclear test.

"The won came under more pressure today after the North Korea news," said Chung Sung Yoon, a currency analyst at Hyundai Futures Corporation in Seoul.

"The remarks by Rosengren hurt the currency market sentiment to begin with."

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