Emerging Asian stocks tumbled as a possibility of multiple and faster interest rate hikes by the US Federal Reserve frayed investor nerves, while a rally in the South Korean won lost steam after the central bank tightened policy.
Equities in Taiwan, Malaysia, the Philippines and Thailand slid between 0.2 percent and 1.1 percent.
The dollar struggled as four Fed rate hikes seemed to be fully priced in, with Fed Governor Lael Brainard becoming the latest and most senior US central banker to signal that rates will rise in March to combat inflation.
That and the Chinese yuan hitting a two-week high on record trade surplus helped Asian currencies recover earlier losses, with Singapore and Taiwan’s dollars firming 0.2 percent each.
“We expect more aggressive Fed hikes to have an adverse impact on capital flows to Asia, which could be detrimental to some countries with worsening current account positions,” said Mitul Kotecha, a senior EM strategist at TD Securities.
“Clearly, there is some impact at present from the shift from growth to value stocks and that is impacting some of Asia’s more tech-driven markets.”
The tech-heavy Seoul bourse sank 1.4 percent after the Bank of Korea raised interest rates back to pre-pandemic levels, as widely expected, while the won ended flat after accumulating gains of more than 1 percent this week.
“The won may have slipped due to equity outflows,” said Wei Liang Chang, a macro strategist at DBS Bank, adding that the hike should cushion the won against larger losses since soaring inflation led the central bank to hint at more tightening.
Indonesia and Malaysia’s central banks are set to hold their policy reviews next week where they are likely to stand pat on rates. Their currencies traded a tad weaker on Friday.
