business

Breather for emerging markets as rupiah halts inspiring rally

March 08, 2016

Indonesia’s currency has halted its longest run of gains in more than six years and dropped 0.4% to 13,140 versus the greenback. – Reuters pic, March 8, 2016. Indonesia’s rupiah halted its longest run of gains in more than six years on speculation a rally in emerging-market assets was too fast given the lingering concern over the health of the Chinese and global economies.

The rupiah ended a 13-day winning streak and developing-nation stocks checked a seven-day advance after relative-strength indicators had signalled a reversal.

Brent crude, the recent precursor of improving sentiment across world markets, retreated after rising above US$40 (RM164.49) a barrel on Monday for the first time since December.

Eyes will be on the European Central Bank, with the possibility of further monetary easing this week.

Chinese exports contracted the most in February since 2009, data showed, days after the National People’s Congress set a lower growth target for the world’s second-largest economy.

Malaysia and South Korea are expected to keep interest rates on hold at meetings in the next two days, while the ECB could add stimulus that typically feeds demand for higher-yielding assets, particularly amid negative rates in Japan and Europe.

"It looks like a bit of a reality check on the optimism after the long US dollar reversals, especially as China and commodity positives are likely to be checked as longer-term plays rather than instant gratification," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd.

"Global challenges remain in place for emerging markets."

Currencies

Indonesia’s currency dropped 0.4% to 13,140 versus the greenback as of 1.57pm in Jakarta, and the Bloomberg-JPMorgan Asia Dollar Index tracking the region’s 10 most-active exchange rates fell from a three-month high.

The South African rand weakened 0.6%, snapping a two-day gain, and a gauge of 20 developing currencies declined for the first time in seven.

The rupiah is leading gains among emerging-market currencies in 2016 along with the Brazilian real and Malaysia’s ringgit. They have each appreciated about 5%. The Argentine and Mexican pesos are the worst performers, with losses of 16 percent and 3.3 percent, respectively.

The real halted a four-day advance on Monday, the longest stretch this year, on concern a recession will be more pronounced.

Optimism had improved on speculation President Dilma Rousseff would be impeached, potentially ending the political gridlock that has prevented the government from passing reforms to help cut the budget deficit.

China’s yuan strengthened after the central bank raised its fixing for a fourth day and data issued late Monday showed a less-than-estimated drop in foreign-exchange reserves.

Exports fell 25% from a year earlier, double the pace in January and more than the median estimate in a Bloomberg survey for a 14.5% contraction, data showed on Tuesday. The trade balance almost halved to US$32.6 billion.

The onshore yuan climbed 0.17% to 6.5068 a dollar in Shanghai, wiping out Monday’s loss.

Stocks

The MSCI Emerging Markets Index of equities headed for its biggest drop in two weeks, retreating 0.6% to 790.50 and down from the year’s high touched Monday. Information technology stocks and financial shares led the decline among the 10 constituent industry groups.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong slid 1.2%, while China’s Shanghai Composite Index reversed losses of as much as 3.3%.

The MSCI measure had rallied 15% from January 21 through Monday, spurred by a rebound in oil. It's trimmed this year’s decline to 0.5% and is valued at 12 times projected 12-month earnings, compared with 16 for the MSCI World Index, which is down 3.3% in 2016.

The emerging-markets gauge slumped 17% last year amid asset outflows fuelled by a looming US rate increase and slowing Chinese growth.

"Investors remain cautious so they are taking profit when they can ahead of major events like the Federal Reserve meeting, which will have an impact on sentiment," said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila, who recommends buying equities on weakness.

"Investors are waiting for more signals if they should continue taking on risk." – Bloomberg, March 8, 2016.