The US dollar’s relentless rise is threatening to trigger more outflows from Asia’s emerging-market shares, spoiling hopes of the region making a comeback in the second half of this year.
A gauge of Asian currencies has slumped to its lowest in more than two years, an ominous sign for equities given their strong relationship with moves in foreign exchange.
The MSCI Asia ex-Japan Index has fallen 20 percent as foreign investors took US$71 billion out of emerging Asian stock markets outside China so far this year, already double last year’s outflows.
The US dollar has steamrolled through global currency markets, benefiting from bets on aggressive US Federal Reserve rate hikes. A stronger greenback bodes ill for Asian stocks when it signals lower risk appetite and is seen as negative for growth in emerging economies, many of which rely on imports priced in the currency.
Tech-heavy Asian markets such as South Korea and Taiwan look particularly vulnerable as higher global bond yields and recessionary headwinds are hurting valuations and the demand outlook.
Stock benchmarks in the two nations are among the worst performers in the region this year, and foreigners have net sold a combined US$50 billion of their shares.
For less export-reliant markets, weaker local currencies worsen national balance sheets and company profit margins, as corporate and sovereign borrowers suffer from higher repayments on dollar-denominated debt.
In India, one of the world’s biggest oil importers, the rupee has tumbled to a record low as the nation faces widening current-account and fiscal deficits.
Meanwhile, the hands-off approach by Thailand’s monetary authority has resulted in a slump in the baht, one of the big decliners in emerging-market currencies this year. Further currency weakness could threaten the resilience their stock markets have shown this year.
Chinese stocks, which experienced a slew of bullish calls last month, have taken a sharp turn lower this month, adding to Asia’s woes. A key gauge of shares listed in Hong Kong is down more than 9 percent amid renewed COVID-19 concerns, an intensifying property crisis and fresh regulatory scrutiny of the tech sector.
Sometimes it doesn’t take much for a trickle in foreign outflows to turn into a flood, said Siddharth Singhai, chief investment officer at New York-based hedge fund Ironhold Capital.
“Foreign investors are very fickle. They tend to move in and out very quickly,” he said.
Asia’s infrastructure, home building and construction stocks will be more affected by a stronger US dollar given their sensitivity to interest rates, he added.
For those seeking to pick up some beaten-down shares, Taiwanese telecoms and consumer staple stocks, Indian IT firms, South Korean healthcare names and Malaysian energy stocks were consistent outperformers during similar periods of depreciating Asian currencies in the past decade, a study by BNP Paribas Securities analysts last year showed.
“From a flows and sentiment perspective, yes Asian stocks tend to underperform in the short term against a rising dollar,” said Christina Woon, investment director for Asia equities at Abrdn PLC.
“You can also find a number of beneficiaries, such as exporters, or companies that have more domestically focused tailwinds where a stronger dollar is less of an issue,” she added.
The US dollar on Friday rose against the euro, but pared gains late in a session that was muddied by quarter-end trading, while riskier commodity-led currencies fell sharply after European inflation hit a record high and US consumer spending increased faster than expected. Although the dollar index was showing its biggest quarterly gain since the first quarter 2015, but was registered its first weekly decline in three weeks. Sterling rose against the dollar after falling earlier in the day. The pound last showed four straight sessions of gains followed by wild declines on concerns about Britain’s plan to slash taxes and pay
SAMSUNG DISTANT SECOND: Top local chip fims served nearly two-thirds of the global market in Q2, while Samsung kept South Korea competitive with its 16.5 percent share Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) remained the world’s largest contract chipmaker in the second quarter of the year with a 53.4 percent share of the global pure-play foundry market, the Taipei-based market information advisory firm TrendForce Corp (集邦科技) said in a research report on Tuesday. Despite TSMC’s market share dipping slightly from 53.6 percent in the first quarter, it was still far ahead of its rivals, TrendForce said. TSMC continued to benefit from emerging technologies, such as high-performance computing devices, the Internet of Things and automotive electronics, as it posted US$18.15 billion in sales in the second quarter, up 3.5 percent
Moderna Inc has refused to hand over to China the core intellectual property behind the development of its COVID-19 vaccine, leading to a collapse in negotiations on its sale in the country, the Financial Times reported on Saturday, citing people familiar with the matter. The Cambridge, Massachusetts-based pharmaceutical company turned down China’s request to disclose the formula for its mRNA vaccine because of commercial and safety concerns, the newspaper said, citing people involved in negotiations that took place from 2020 to last year, adding that the vaccine maker is still “eager” to sell the product to China. The company had “given up”
PRICE POINT: While overall demand has lagged expectations, higher-priced iPhone 14 Pro models appear to attract more attention than entry-level versions, sources said Apple Inc is backing off plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize, people familiar with the matter said. The Cupertino, California-based company has told suppliers to pull back from efforts to increase assembly of the iPhone 14 product family by as many as 6 million units in the second half of this year, said the people, asking not to be named as the plans are not public. Instead, the company would aim to produce 90 million handsets for the period, about the same level as in the second half