REUTERS: South Korea led a rebound in Asia’s emerging market shares on Friday, but were set for their biggest weekly decline since the onset of the pandemic, as investors brace for a year of aggressive rate hikes from the US Federal Reserve.
Shares in Seoul rose 1.9% to pare some of the heavy losses recorded over the last few days, but were still on course for a nearly 6% weekly drop. The won weakened 0.3%. US stock futures rose in Asia trade, while equities in Mumbai, Bangkok and Shanghai traded 0.2% to 1.3% higher, recouping some losses made in Thursday’s aggressive share sell-off.
Traders in the fed funds futures market moved to price in nearly five rate hikes this year in the wake of Fed Chair Jerome Powell’s remarks on Wednesday, starting with the March meeting.
Currencies in the region, which have suffered some losses over the course of the week against broad dollar strength, saw modest gains. India’s rupee, Indonesia’s rupiah and Malaysia’s ringgit rose between 0.1% and 0.2%.
China’s yuan recovered some lost ground against the dollar following its biggest one-day weakening in more than seven months, though trading was subdued in the approach to the Lunar New Year holiday. “Pressure on Asian FX is likely to be most acute in the weeks preceding, as markets increasingly price in rate hikes, and in the immediate aftermath, of the first Fed rate hike. Pressures dissipate soon after,” said Chief EM Asia and Europe strategist Mitul Kotecha.
Central banks in Asia have not been pressured to pursue interest rate hikes as aggressively as their peers in Europe and Latin America. However, the prospect of higher US interest rates has left regional policymakers balancing the need to protect economic recovery, while stemming potential outflows that could weaken current account surpluses.
“ASEAN growth catch-up and better readiness to deal with COVID suggests that some central banks in Asia can afford to normalise policy faster,” said Maybank Senior FX Strategist Christopher Wong.