World Economy

EM Rally Ebbs

EM Rally EbbsEM Rally Ebbs

The future of this month’s rally in emerging markets is hanging on whether the Federal Reserve signals further policy tightening is imminent.

Developing-nation currencies and stocks are paring their advance before the Fed concludes its two-day meeting in Washington, eating into the fruits of their best month since at least October. Indonesia’s rupiah and South Korea’s won dropped on Wednesday and the MSCI Emerging Markets Index extended Tuesday’s loss, with nine of its 10 industry groups falling, Bloomberg reported.

The risk for emerging markets is that tightening monetary policy in the US would boost the dollar and spark a resumption in the outflows that dragged them lower in the first two months of the year before March’s rebound. Conversely, a signal from US policy makers that they’re willing to wait longer before increasing interest rates may fuel fresh gains.

“The Fed meeting is important to see whether emerging-market currencies can continue to consolidate their gains and even rally further into April,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “We’ve had a paring back of Fed rate-hike expectations, but if the market starts contemplating increases we could see the dollar’s fortunes turn around and hurt emerging markets again.”


MSCI’s measure of developing-nation equities fell 0.3% to 788.44 in London, following Tuesday’s 1.6% decline. The index is up 6.5% in March, poised for its first monthly gain since October, and is down 0.7% in 2016. The gauge is traded at 11.4 times the projected 12-month earnings of its members compared with a multiple of 15.7 for the MSCI World Index, which has fallen 2.8% this year.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong dropped 0.8%, while the Shanghai Composite Index added 0.2% after Premier Li Keqiang said the government will support the economy at the close of the annual policy meetings.

Taiwan’s Taiex advanced 1% and South Korea’s Kospi rose 0.3% as overseas funds bought local stocks. Equity benchmarks in the Philippines, India and Thailand fell at least 0.7%, while Vietnam’s rose about 0.6%.

 Currencies & Bonds

Bloomberg’s gauge of emerging currencies slipped about 0.1%. It’s up 2.6% so far in March, headed for the best month since April.

The won declined 0.5% as an official report showed the nation’s jobless rate rose to a six-year high of 4.1% in February, and as traders reassessed the dollar’s prospects before the Fed concludes its meeting on Wednesday. The rupiah weakened 0.6%, South Africa’s rand retreated 0.3% and China’s yuan fell 0.1%. Thailand’s baht and Taiwan’s dollar advanced at least 0.2%.

Government bonds declined in several Asian markets. Malaysia’s 10-year yield rose three basis points to 3.94%, compared with an increase of one basis point to 1.88% in Thailand. Indonesia’s fell one basis point to 7.53%.