BENGALURU- South Korea and Taiwan stocks fell more than 1 percent each on Friday, leading falls across Asia’s emerging markets, after US stocks took a hit overnight, while fears that the Federal Reserve may tighten policy more aggressively kept a lid on currencies.
Shares in Taiwan closed 1.8 percent lower, while in South Korea they slid as far as 1.5 percent to their lowest in more than a year – as their tech sectors caught the chill from the Nasdaq, which has found itself in correction territory.
The US dollar took a breather on Friday as investors picked up Treasuries, stalling a rise in yields, though markets have now priced in four interest rate hikes by the Fed this year, including one as soon as March.
The prospect has also placed Asia’s central banks on watch, leaving policymakers with the difficult decisions of protecting economic recovery in their countries while maintaining stability and stemming potential outflows.
Emerging Asian “economies are not only disadvantaged in access to dollar funding under constraint, but are acutely vulnerable to capital outflows from a double whammy of rising long-end ‘risk-free’ UST (Treasury) yields and rising ‘risk premium’,” Mizuho said in a note.
On Thursday, central banks in Malaysia and Indonesia held their key policy rates steady ahead of the Fed’s Jan. 25-26 meeting, where investors will be keenly watching out for hawkish signals.
The rupiah, a popular carry trade for investors, dipped 0.1 percent, while the ringgit firmed 0.1 percent.
Some analysts and economists detected a potential shift in Bank Negara Malaysia (BNM) from its policy statement.
“The central bank omitted a relatively dovish sentence from its statement, which we interpret as suggesting BNM no longer views policy easing as being more likely than tightening in the near term,” analysts at Barclays said.
