Asian Emerging Market Shares Drop, While Financial Stocks Rally

  • Exporters drop on concern Trump will renegotiate trade deals
  • Shanghai Composite enters bull market as metal producers surge

What's Driving the Selloff in Emerging Markets?

Asian shares fell, with emerging-market stocks leading declines on bets the Federal Reserve will raise interest rates faster than anticipated. The Shanghai Composite Index entered a bull market and financial firms in Tokyo and Sydney rallied.

The MSCI Asia Pacific Index lost 0.8 percent to 135.54 as of 4:01 p.m. in Hong Kong, erasing earlier gains of as much as 0.4 percent. The gauge is down 0.9 percent for the week. Indexes in Indonesia, the Philippines and Taiwan led declines. Japanese shares capped their best week since September and Chinese equities rallied as metals companies surged and property curbs boosted the lure of stocks.

Markets in Asia have been whipsawed after Republican Donald Trump shocked investors by winning the U.S. presidential race against Democrat Hillary Clinton. After regional equities initially tumbled on news Trump won, they soon recovered on signs he will boost fiscal spending. That’s spurring speculation that U.S. borrowing costs will rise more quickly than previously thought and the greenback will advance, limiting fund flows to developing-nation assets.

“Emerging markets will probably suffer from additional outflows of foreign funds for a long time with the outlook of a strong dollar and higher U.S. interest rates,” said Komsorn Prakobphol, head of the strategy unit at Tisco Financial Group Pcl in Bangkok, whose mutual-fund unit manages about $5 billion of assets.“The only country in Asia that will benefit from the strong dollar is Japan, where a weaker currency is needed to help spur sagging growth.”

Emerging Markets

A gauge of developing-nation currencies was set for a third day of losses after the Bloomberg Dollar Spot Index climbed to an eight-month high Thursday. Federal Reserve Bank of Richmond President Jeffrey Lacker said policy makers will be debating another increase in December and the “case for raising rates is relatively strong.”

The Jakarta Composite Index fell 3.3 percent, heading for its biggest decline since August 2015. The rupiah weakened 1,1 percent after plunging as much as 3.1 percent earlier, prompting the nation’s central bank to say it stepped in to stabilize the market.

Taiwan’s Taiex Index dropped 2.1 percent and fell 1.2 percent this week, while the Philippine Stock Exchange Index sank 2.9 percent. South Korea’s Kospi index lost 0.9 percent, Hong Kong’s Hang Seng Index slumped 1.4 percent and New Zealand’s S&P/NZX 50 Index fell 0.5 percent.

Metal producers including Jiangxi Copper Co. and Aluminum Corp. of China Ltd. were among the biggest gainers on the Shanghai Composite Index on Friday. The gauge Index advanced 0.8 percent to , taking its gain from its Jan. 28 low to more than 20 percent. The benchmark measure has rallied more than 6 percent since the end of September as cities including Shanghai unveiled curbs to cool the housing market, while margin debt is also rising.

“Liquidity is abundant and property curbs will prompt more money to flow into stocks, which look undervalued relative to homes in large cities,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management.

Banks Jump

Japan’s Topix index added 0.1 percent, advancing 2.3 percent this week, while Australia’s S&P/ASX 200 Index rose 0.8 percent. Banks, brokerages and life insurers climbed on expectations that a Trump presidency will continue to push up bond yields, while financial regulations may be eased. Mitsubishi UFJ Financial Group Inc. surged 9 percent in Tokyo and Nomura Holdings Inc. rallied 5.1 percent. Australia & New Zealand Banking Group Ltd. climbed 2.6 percent in Sydney.

Asia’s biggest exporters declined amid concern Trump will seek to renegotiate trade deals. Samsung Electronics Co. slid 3.1 percent in Seoul, while Apple Inc. supplier Pegatron Corp. tumbled 10 percent in Taipei. Trump has accused China, where most components and smartphones are made, of taking American jobs and has threatened punitive tariffs of as much as 45 percent on imports.

Futures on the S&P 500 Index were little changed. The underlying equity measure climbed 0.2 percent on Thursday, while the Dow Jones Industrial Average gained 1.2 percent to an all-time high. Financial shares rallied as a statement posted on the president-elect’s official transition website said the new administration will replace the Dodd-Frank Act financial-sector law with pro-growth policies. Benchmark 10-year Treasury yields were steady at 2.15 percent, poised for a 37 basis point jump this week.

“The rise in interest rates that we’re seeing now is a sign that the market’s taking a positive view of Trump’s perceived economy-boosting policies,” said Juichi Wako, a senior strategist at Nomura in Tokyo. “We’ll probably see twists and turns over the actual policies and the cabinet members, but now it’s easier to see a Trump-congratulatory market.”

— With assistance by Yuko Takeo

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