Asian stocks were largely mixed on Monday, with Malaysian and Philippine equities falling the most, while currencies weakened as concerns over the Omicron variant and inflation pressured most emerging units on the first trading day of the year.
Malaysian shares declined as much as 1.2 percent to mark their worst intraday drop in two months as the country witnessed severe flood situation in several states, while stocks in South Korea, Indonesia and India logged modest gains.
Among currencies, the South Korean won slipped up to 0.4 percent to its lowest in nearly two weeks, while the Malaysian ringgit, Singapore dollar and the Indonesian rupiah weakened about 0.2 percent.
Investors in risk-sensitive Asian markets are closely watching how the US Federal Reserve will taper its monetary policy, as it faces the economic risks from the Omicron variant and rising inflation rates.
In Asia, central banks will want to keep rates low to offset the impact on their economies from a surge in COVID-19 cases, without leaving their currencies vulnerable to excessive dollar strength when the Fed begins to withdraw stimulus.
Analysts at Mizuho Bank expect the “asynchronous” global economic recovery – with emerging markets trailing the developed markets, vulnerable to contagions, US monetary tightening or China’s rippling credit risks – to not only persist, but “perhaps compound” in 2022.
“The policy dilemma for EM Asia will worsen as fiscal policy, despite its stretched bandwidth, remains the mainstay for growth support, while monetary policy is caught in divergent tides of an even slower domestic economic recovery and tighter monetary policy from the Fed,” analysts at Mizuho Bank said.
