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Saturday, 29 June 2013 00:00 - - {{hitsCtrl.values.hits}}
Though most regional units made modest advances on Friday, emerging market assets are expected to remain under pressure in the third quarter as concerns about the Federal Reserve’s stimulus plans and China’s slowing economy persist.
The rupee lost 9.1% against the dollar in the second quarter, the largest percentage fall since such data on Thomson Reuters became available in 2003. The Indian currency suffered from more outflows than other emerging Asian currencies in the recent global markets rout due to worries about a record-high current account deficit.
The Thai baht lost 5.8% in the quarter and the Philippine peso declined 5.6%. If those currencies maintain the losses through to Friday’s close, their percentage falls would be the largest since the second quarter of 2008, Thomson Reuters data showed. The South Korean won fell 2.7%, while the Singapore dollar declined 1.9%, which would be the largest since the third quarter of 2011. The Malaysian ringgit lost 2.5%.
“Markets are leaning closer towards being cautious on Asia debt and currencies, with positions being lightened up further,” said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur. “That means a number of fund management and asset management firms are resigning to the fact of lower returns for the year.”
Fed Chairman Ben Bernanke said on 19 June that the central bank may moderate the pace of quantitative easing later this year and end the stimulus by mid-2014. That boosted expectations of a reduction in global liquidity and prompted outflows from emerging Asian countries, once a major beneficiary of easy money pumped by major central banks.
The speculation also lifted US Treasury yields, reducing yield differentials between US and emerging Asian countries. Adding to pressure on regional currencies, a brief but sharp spike in China’s money market rates fuelled fears that the world’s second-largest economy could slow further.
But emerging Asian currencies are seen having priced such worries in to some degree, traders and analysis said. Some regional units such as the won may find relief as investors may seek stronger fundamentals, they added.
“As we saw with the first round of unwinding, investors will select assets on fundamentals rather than dumping Asia as a whole,” said Jeong My-young, Samsung Futures research head in Seoul. “Asian currencies are not free from the Fed and China concerns in the third quarter. But there will be demand for healthy countries, like Korea and Taiwan,” Jeong said.
