In­vestors re­main wary of more losses

> Asian stocks, bonds find foot­ing af­ter two weeks of heavy beat­ing

The Sun (Malaysia) - - SUNBIZ -

HONG KONG/SIN­GA­PORE: Asian mar­kets have stead­ied af­ter two weeks of heavy losses in which in­vestors rushed funds out of the re­gion as they repo­si­tioned for a Trump pres­i­dency, but these mar­kets re­main vul­ner­a­ble to fur­ther sharp cap­i­tal out­flows.

The dol­lar has given up some gains af­ter it climbed more than 6% in the last two weeks against a tradeweighted bas­ket of cur­ren­cies, while Asian stocks have found their feet af­ter heavy losses. An­a­lysts warn, how­ever, that the calm may be tem­po­rary.

“It is too early to say whether the worst is over for Asian mar­kets,” said San­ti­tarn Sathi­rathai, an econ­o­mist at Credit Suisse based in Sin­ga­pore. “A fur­ther dol­lar rally or a hawk­ish Fed may trig­ger more out­flows.”

Emerg­ing se­cu­ri­ties mar­kets lost more than US$16 bil­lion (RM71.5 bil­lion) and their cur­ren­cies fell hard in the first two weeks fol­low­ing Trump’s elec­tion, high­light­ing the vul­ner­a­bil­ity of this trade-de­pen­dent re­gion.

Novem­ber of­fi­cial for­eign ex­change re­serves data for most Asia-Pa­cific coun­tries in­clud­ing China, South Korea and Tai­wan, will be pub­lished next week.

Cen­tral banks have in­ter­vened by sell­ing for­eign cur­ren­cies to stem losses in their own cur­ren­cies, and that could show up as a fall in for­eign ex­change re­serves, with China thought to be among those sell­ing dol­lars.

Stock mar­kets from Hong Kong to In­dia have seen large out­flows, and there has been heavy sell­ing of Korean and Malaysian debt as in­vestors as­sess the im­pact of Trump’s win on the re­gion and where the best re­turns now are.

Asia has ben­e­fited hand­somely since the global fi­nan­cial cri­sis as ma­jor cen­tral banks have flooded mar­kets with cheap stim­u­lus cash, but as the US ap­proaches more nor­mal mon­e­tary pol­icy, risk aver­sion may re­turn.

The im­me­di­ate im­pact of Trump’s elec­tion was for some of that stim­u­lus money to head home as in­vestors de­cided his spend­ing plans could spark some growth and in­fla­tion in the US, rais­ing ex­pec­ta­tions for a quick­en­ing of the Fed­eral Re­serve’s tight­en­ing cy­cle.

That view saw US Trea­sury yields surge, lift­ing the dol­lar and sharply erod­ing Asia’s yield dif­fer­en­tial, which is needed to re­ward in­vestors for the ex­tra risk they take. On Fri­day, 10-year US Trea­sury yields rose to 2.417%, their high­est since last July, up more than half a per­cent­age point in roughly two weeks.

A Bank of Mer­rill Lynch sur­vey of fund man­agers con­ducted in the week af­ter the US elec­tions shows a steep drop in emerg­ing mar­ket al­lo­ca­tions to a net 4% over­weight from 31% be­fore, its big­gest drop in five years.

In the two weeks end­ing Nov 23, about US$6.2 bil­lion had left Asian eq­uity mar­kets while emerg­ing mar­ket bond funds, in­clud­ing Asia, have seen out­flows of US$9.6 bil­lion in the last three weeks, ac­cord­ing to a Jef­feries anal­y­sis of EPFR Global data. – Reuters

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