Emerging Assets Tumble as Trump Seen Spurring More Fed Hikes

(Bloomberg) - Indonesia’s rupiah led emerging-market currencies to their worst three-day rout since 2011 and bond slumped with stocks as speculation the Federal Reserve will turn more aggressive in boosting interest rates under a Donald Trump- led administration spurred a selloff in higher-yielding assets.
Emerging Assets Tumble as Trump Seen Spurring More Fed Hikes
Emerging Assets Tumble as Trump Seen Spurring More Fed Hikes
The rupiah sank to the lowest level since June and the South Korean won weakened to a four-month low after the Bloomberg Dollar Spot Index climbed to an eight-month high Thursday. Shares in Indonesia, Hong Kong and Taiwan paced losses in a gauge of developing-nation stocks, which sank to a July low. South Korea’s 10-year bond yield jumped to the highest since March.

Developing-nation assets are poised for a third week of losses as speculation that Trump’s election victory will lead to a wave of spending spurred bets that inflation will increase in the coming months. Concern that the president elect will enforce protectionist U.S. policies also battered emerging-market currencies.

 “Emerging markets will probably suffer from additional outflows of foreign funds for a long time with the outlook of a strong dollar and higher U.S. interest rates,” said Komsorn Prakobphol, head of strategy unit at Tisco Financial Group Pcl, whose mutual-fund unit manages about $5 billion of assets.“We have advised clients to reduce their investments in emerging markets and shift them to U.S. equities.”

The MSCI Emerging Markets Currency Index sank 0.6 percent at 10:06 a.m. in Hong Kong, taking declines over three days to 2.3 percent. The rupiah weakened 2.7 percent, the won slid 1.3 percent and the Thai baht dropped 0.5 percent.

 The MSCI Emerging Markets Index declined 1.7 percent, as Indonesian equities slumped 3.2 percent. Stock gauges in Taiwan and the Philippines lost at least 1.9 percent, while a measure of mainland Chinese companies traded in Hong Kong sank 1.8 percent.

Federal Reserve Bank of Richmond President Jeffrey Lacker said policy makers will be debating another increase in December and the “case for raising rates is relatively strong.”

“The market is reflecting the growing likelihood of faster and more frequent Fed rate increase in Donald Trump’s administration,” said Chung Sung-yoon, a currency analyst at Hyundai Futures Co. in Seoul. “The expectation is fueling the dollar’s rally and weighing on emerging currencies.”

 Asian government bonds sank. South Korea’s 10-year yield jumped seven basis points to 1.89 percent, the highest since March. Thailand’s yield rose four basis points to 2.32 percent and China’s yield rose two basis points to 2.83 percent, both headed for a fifth day of increases.

Source: Bloomberg