Jakarta - A gauge of emerging-market stocks fell to the lowest level in two weeks as investors cut holdings of higher-yielding assets before the US and Japanese central banks announce policy decisions this week.
The MSCI Emerging Markets Index of shares dropped for a third day, led by losses in Indonesia and Malaysia.
Malaysia’s ringgit tumbled the most in a month after state-owned investment company 1Malaysia Development. said it had defaulted on a bond payment. The Shanghai Composite Index erased earlier losses to gain the most in two weeks.
“Some downside pressure on emerging-market assets is to be expected as we don’t think the Fed can get more dovish than where it was a week ago,” said Mixo Das, a strategist at Nomura Holdings in Singapore.
“Indicators of risk appetite were already toppy coming into April."
The MSCI Emerging Markets Index fell 0.2% to 837.41 as of 09:24, set for its lowest close since April 12.
The Jakarta Composite Index dropped 1.5%, the FTSE Bursa Malaysia KLCI Index slid 1.1% and the Hang Seng China Enterprises Index, which tracks Chinese shares in Hong Kong, slipped 0.4%.
The Shanghai Composite Index gained 0.6% after being down as much as 0.4%.
Telecom shares
A gauge for telecommunications stocks slid 0.6%, the biggest decline among the 10 industry groups in the MSCI Emerging Markets gauge. China Mobile fell for a third day in Hong Kong, losing 0.6%. PT Telekomunikasi Indonesia, the country’s biggest telecom company by market capitalization, slid 3.3%.
The Federal Reserve will release its third policy decision of the year on Wednesday, and the Bank of Japan announces on Thursday.
While the Fed is predicted to stay on hold this week, its statement may give clues about the potential timing of further increases.
There’s a 64% chance the Federal Open Market Committee will boost its benchmark by year-end, up from 54% odds at the end of March, according to data compiled by Bloomberg based on fed fund futures.
‘Major reason’
“The FOMC meeting is still the major reason that’s driving the emerging-market assets lower,” said Philip Wee, senior currency economist at DBS Group Holdings in Singapore.
“We think Asian currencies will be under pressure in 2016 due to our expectation of higher US rates. Our house sees three Fed hikes this year.”
The ringgit dropped for a fourth day, the longest losing streak since November, after 1MDB said it was withholding a $50m payment on $1.75bn of dollar notes in a dispute with International Petroleum Investment, which is the co-guarantor of the bonds maturing in 2022. The deadline was on Monday.
The ringgit dropped 0.8% to 3.9385 per dollar, the biggest decline since March 24. The currency has slumped 2.3% since reaching an eight-month high on April 13.
“At the margin, this has to be negative for the ringgit,” said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank in Singapore. “Obviously, contingent liability on the government as well as rating risk is there.”
Baht, Won
The South Korean won weakened 0.3% to 1 150.01 per dollar, the Thai baht dropped 0.3% to 35.21, and the rand fell 0.2% to 14.4871. The MSCI Emerging Markets Currency Index dropped for a fourth day, losing 0.1%.
The Philippine peso touched a seven-week low as polls showed Davao City Mayor Rodrigo Duterte leading the race to win a May 9 election to succeed President Benigno Aquino.
The polls were conducted after Duterte’s inflammatory comments over the 1989 rape and murder of an Australian missionary.
The peso was little changed at 46.83 per dollar after declining to 46.943, the weakest level since March 9.