Investors remain wary of more losses

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

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