Strong dol­lar puts pres­sure on Asia stocks

> Green­back hov­er­ing near a 14-year high, in­vestors brace for higher in­fla­tion un­der Trump pres­i­dency

The Sun (Malaysia) - - SUNBIZ -

HONG KONG: The US dol­lar hov­ered near a 14-year high yes­ter­day and Trea­sury yields ex­tended their rise as in­vestors braced for higher in­fla­tion in the US amid ex­pec­ta­tions of fis­cally ex­pan­sion­ary po­lices un­der Don­ald Trump’s pres­i­dency.

The com­bi­na­tion of the two have de­railed Asian cur­ren­cies and equities, par­tic­u­larly in South Korea, Tai­wan and In­done­sia, which have seen big in­flows this year, espe­cially af­ter the shock ref­er­en­dum vote by Bri­tain to exit the Euro­pean Union in June.

MSCI’s broad­est in­dex of Asi­aPa­cific shares out­side Ja­pan was flat in early trade af­ter fall­ing nearly 5% since Trump’s shock vic­tory at the US pres­i­den­tial elec­tions last week.

Aus­tralian stocks led re­gional losers with the broader in­dex down 0.5%. Hong Kong stocks edged higher, boosted by ex­pec­ta­tions of strong earn­ings from in­dex heavy­weight Ten­cent.

“Hong Kong like other emerg­ing mar­kets will con­tinue to un­der­per­form de­vel­oped mar­kets in the near-term be­cause the ris­ing value of the dol­lar shrinks the value of over­seas in­vest­ments,” said Alex Wong, port­fo­lio man­ager at Am­ple Cap­i­tal based in Hong Kong.

On a trade-weighted ba­sis, the dol­lar in­dex vaulted above its Jan­uary peak to hit 100.22 on Mon­day, its high­est since early De­cem­ber last year and hov­er­ing near its De­cem­ber 2015 peak of 100.51. A rise beyond that would take it to its high­est level since 2003. On Tues­day it eased 0.2% to 99.915.

That rise and higher US yields have fu­elled cap­i­tal out­flows from emerg­ing mar­kets. For­eign in­vestors have pulled out 950 bil­lion won (RM3.52 bil­lion) from Korean stocks and pumped in 397.4 bil­lion won into bonds be­tween Nov 9 and 14.

An­a­lysts ex­pect more gains for the green­back in the short-term, re­sult­ing in fur­ther head­winds for Asia.

Though emerg­ing mar­ket equities have staged a come­back in the third quar­ter, their per­for­mance has sharply di­verged since last week, putting de­vel­oped equities com­fort­ably ahead.

“The im­me­di­ate driv­ing force is the an­tic­i­pated pol­icy mix in the US,” said Brown Broth­ers Har­ri­man an­a­lysts in a note to clients.

De­spite the gen­eral air of cau­tion over Asian mar­kets, in­vestors are eye­ing some op­por­tu­ni­ties such as bank­ing stocks in Hong Kong, which would ben­e­fit from any Trump-led dereg­u­la­tion in the fi­nan­cial sec­tor.

Some in­vestors were also con­sid­er­ing the In­dian ru­pee, which is rel­a­tively less ex­posed to any flareup in global trade pro­tec­tion­ism than oth­ers.

In cur­rency mar­kets, the dol­lar was trad­ing at ¥107.88 af­ter hit­ting its high­est level in more than five months overnight. Even the less volatile Chi­nese ren­mimbi plunged to its low­est lev­els in nearly eight years to 6.8641 af­ter a weak fix­ing. The dol­lar has been on a tear since Trump’s shock vic­tory trig­gered a mas­sive sell off in Trea­suries.

The large moves in mar­kets has been stoked by ex­pec­ta­tion that Trump’s promised in­fra­struc­ture spend­ing and tax cuts will spur higher US growth, push­ing up in­fla­tion as well as bor­row­ing costs.

Just two days of sell­ing last week wiped out more than US$1 tril­lion across global bond mar­kets, the worst rout in nearly 1 years, ac­cord­ing to Bank of Amer­ica Mer­rill Lynch. – Reuters

A tug boat is seen near a con­tainer port in Tan­jung Priok, North Jakarta, In­done­sia.

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