Emerging-Market Currencies Fall as Singapore Flags Growth Risks

  • City-state's dollar drops most in five months after easing
  • MSCI index of stocks gains for sixth day to five-month high

Most emerging-market currencies fell as Singapore surprised markets by easing monetary policy, spurring speculation other that central banks will follow suit.

Malaysia’s ringgit dropped for the first time in seven days as Singapore switched to a neutral policy of zero percent appreciation of its dollar. South Korea’s won and bonds fell after the nation’s ruling party was routed in parliamentary elections. Brazil’s real rose to the highest closing level since August as speculation mounted that a change in government is imminent and a new president will be better able to pull the country out of recession.

“If the Monetary Authority of Singapore is easing, then it produces more scope for easing elsewhere,” said Mirza Baig, the head of Asia Pacific foreign-exchange and interest-rate strategy at BNP Paribas SA. “Singapore is seen as a bit of a bellwether for the region.”

Emerging-market assets, which have rebounded this year as the Federal Reserve reaffirmed its accommodative stance and commodity prices recovered, received an additional boost this week as an improvement in Chinese trade data pointed to a stabilization in the world’s second-largest economy. The International Monetary Fund’s warning on Tuesday that a prolonged period of slow global growth has left the world economy more exposed to negative shocks is tempering some of the optimism.

Rates Outlook

The MSCI Emerging Markets Currency Index fell 0.2 percent, halting a 1.2 percent advance over the previous five days. The measure is up 3.9 percent in 2016 after declining in each of the last three years.

Singapore’s dollar depreciated 0.9 percent after the central bank cut rates in response to a standstill in growth in the city-state. The won slid 0.9 percent and the ringgit dropped 0.5 percent.

“There’s a case for central banks in this region to do a little bit more to try to stimulate the economy,” Kelvin Tay, the regional chief investment officer at UBS AG’s wealth management business in Singapore. “We do expect a little bit more easing and interest-rates cuts in the region, given the fact that inflation is almost non-existent. Even though the price of oil has rebounded, it’s still very, very low.”

Brazil Rally

Brent crude fell 0.8 percent to $43.84 a barrel in London after erasing a gain of as much as 1 percent. Oil prices fluctuated as major producers prepare to meet Sunday in Doha to discuss freezing output.

“Emerging markets are very much split into commodity exporters and importers, so the Doha summit is very important,” said Simon Quijano-Evans, the London-based chief emerging-market strategist at Commerzbank AG. “Most are skeptical about a freeze being agreed.”

The real rose 0.8 percent as speculation that president Dilma Rousseff will be ousted offset policy makers’ attempt to weaken the currency. Brazilian assets have soared this year on the prospect that a new government will be able to restore growth and curb a record budget deficit, with the currency, stocks and corporate bonds all among the world’s best performers.

The MSCI Emerging Markets Index rose 0.2 percent to 845.45, its highest closing level since Nov. 6. The developing-nation gauge has advanced 6.5 percent this year and is valued at 11.9 times the 12-month estimated earnings of its constituents. That compares with a 0.6 percent gain in the MSCI World Index, which is trading at a multiple of 16.1.

Yield Spread

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong and the Shanghai Composite Index both rose 0.5 percent. South Korea’s Kospi index climbed 1.8 percent to a four-month high as trading resumed after a one-day break for the elections. Markets in India and Thailand were closed on Thursday.

Hanwha Chemical Corp. surged 13 percent in Seoul, the most in 11 months after HI Investment & Securities Co. predicted the company will report record quarterly earnings.

Dubai’s DFM General Index advanced 1.3 percent to a five-month high as Emaar Properties PJSC gained 4.6 percent. Saudi Arabia’s Tadawul All Share Index gained 1 percent.

The yield on 10-year Korean notes rose five basis points to 1.84 percent, the biggest increase since March 11, following the ruling Saenuri Party’s electoral setback, which prompted its Chairman Kim Moo Sung to resign. The opposition picked up votes amid rising youth unemployment, a protracted slide in exports and weak consumer sentiment.

The extra yield investors demand to own emerging market debt instead of Treasuries narrowed five basis points to 392, according to JPMorgan Chase & Co. indexes.

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