Shanghai - Emerging-market assets declined on concern Federal Reserve Chair Janet Yellen will signal the US central bank is still determined to raise interest rates this year and after North Korea launched a ballistic missile from a submarine off its east coast.
The won led losses in Asian currencies after North Korea test-fired the missile early Wednesday, adding to the mounting geopolitical tension in the region since South Korea said it would deploy a new Thaad missile shield system. Yellen is due to speak Friday at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. The Philippine peso, Indonesian rupiah and Malaysian ringgit all weakened, while a gauge of developing-nation shares was headed for the biggest drop in three weeks.
“The missile is one of the reasons why we’re seeing a definite risk-off move in the Korean won,” said Stephen Innes, a senior trader at Oanda Asia Pacific Pte in Singapore. “With emerging markets, it’s about the uncertainty over the Federal Reserve. There’s some expectation that interest-rate hikes are going to eventually hit the market.”
Currencies
The MSCI Emerging Markets Currency Index fell 0.6 percent as of 6:36 a.m. in London, poised for its biggest loss since June 27. The won slid 0.4 percent versus the greenback after dropping as much as 0.9 percent.
“We’ve had a series of missile launches from North Korea in recent months,” said Min Gyeong Won, a currency analyst at NH Futures in Seoul. “Investors appear to have learned that the market’s recovery from geopolitical jitters is pretty quick.”
The peso, Indonesian rupiah and Turkish lira slipped 0.3 percent, while Taiwan’s dollar weakened 0.2 percent.
Malaysia’s ringgit fell for a fourth day as a drop in crude worsened the outlook for the net oil exporter. The currency declined 0.3 percent. Oil resumed its slide after industry data showed US stockpiles rose, keeping inventories at the highest seasonal level in at least 30 years.
South Africa’s rand rallied 0.5 percent after Reserve Bank Governor Lesetja Kganyago said the policy stance is supportive of growth, in an interview on Johannesburg-based Power FM radio station. The currency plunged 3 percent Tuesday after the Daily Maverick news website said a police unit had ordered Finance Minister Pravin Gordhan to report to its offices on Thursday, raising concern the National Treasury chief will be replaced.
Stocks
The MSCI Emerging Markets Index of shares slumped 0.8 percent, the worst decline since August 3 on a closing basis. All 10 industry gauges fell, led by the measures for financial and consumer discretionary companies.
“I think some investors are using the North Korean weapon test as an excuse for profit taking,” said Jeffrosenberg Tan, associate director at PT Sinarmas Sekuritas in Jakarta. “Some are also selling ahead of the Jackson Hole summit this week, just in case they made an unexpected statement that could provide a hint on the rate move.”
The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 1.1 percent. Industrial and Commercial Bank of China retreated 2 percent, while China Construction Bank dropped 1 percent.
The benchmark Philippine equities gauge dropped 0.9 percent and South Korea’s Kospi Index lost 0.3 percent.
AirAsia Bhd plunged 7.1 percent in Kuala Lumpur, the most on the MSCI emerging-stocks gauge and it’s biggest decline in a year, after its long-haul unit reported weaker-than-expected earnings. The carrier was downgraded to "Sell" from "Hold" at UOB Kay Hian this week.
Indonesian mobile phone operator PT XL Axiata tumbled 6.5 percent after the company reported lower than expected first half earnings and Nomura Holdings Inc. and Daiwa Securities Group Inc. cut their recommendations from "Buy."
Bonds
Global bond funds now have more money invested in emerging-market debt than at any time in the past four years. The average allocation to developing-nation bonds jumped to 16.5 percent in July, according to Morningstar. Holdings have climbed almost four percentage points since the beginning of the year, the data set of 96 US-domiciled global funds showed.
Near-zero rates in the developed world have driven money managers to emerging-market bonds with yields on average about nine times higher than the developed-country assets that make up the bulk of their portfolios.
South Africa’s 10-year rand-bond yields surged to the highest in more than a month.
South Korea’s bonds were little changed with the three-year yield at 1.23 percent and the 10-year at 1.42 percent. Malaysia’s bonds advanced, sending the 10-year note yield down one basis point to 3.55 percent, according to prices from Bursa Malaysia.
BLOOMBERG