Asian shares dip but hold weekly gains

23 Dec 2015 | Author: | No comments yet »

Asian shares dip but on track for weekly gain.

Tokyo/Singapore – Asian shares took their cue from Wall Street and slipped on Friday, but were still on track for gains in a week marked by the first US interest rate hike in nearly a decade and a depreciating yuan.South Korea’s won headed for a third weekly drop after the Federal Reserve raised interest rates and as the falling yuan damped the nation’s export outlook.Indonesia’s rupiah, South Korea’s won and the Singapore dollar are projected to decline the most in 2016, with India’s rupee seen depreciating the least.Asian stock markets jumped on Thursday, with Japan’s Nikkei adding 2.4 percent, Australian stocks climbed 1.7 percent, while Shanghai put on 1.1 percent.

The divergence between US and other countries’ policies is already expanding, with Taiwan’s central bank unexpectedly cutting interest rates for the second time this year on Thursday. The bank also said it would keep monetary policy loose to shore up growth in the island’s trade-dependent economy as the global demand outlook worsened. In the direct wake of the decision we have seen some dramatic moves in central bank policy with Taiwan cutting its benchmark interest rate, Hong Kong and Mexico both hiking rates, and Argentina removing currency controls and devaluing the peso by 30%,” Angus Nicholson, market analyst at IG in Melbourne, said in a note to clients. Federal Reserve on Wednesday indicated four interest-rate increases next year, Taiwan cut on Thursday and economists are forecasting reductions in China, South Korea, Thailand, India and Indonesia to spur growth.

China’s yuan has weakened against the dollar for 10 straight sessions through Thursday, the longest weakening streak on record, after the central bank guided the Chinese currency lower. A quarter of South Korean exports are shipped to China, according to Australia & New Zealand Banking Group Ltd. “For Asian currencies and the won in particular the continued decline in the yuan is having an impact,” said Khoon Goh, a senior strategist at ANZ in Singapore. “That’s putting pressure on Asian currencies particularly those with close export ties to China.” The won dropped 0.4 percent this week and on Friday to 1,184.65 a dollar as of 10:53 a.m. in Seoul, data compiled by Bloomberg show.

China’s slowdown is hurting Asian nations with strong trade linkages to the world’s second-biggest economy, and the Aug. 11 devaluation of the yuan clouded the outlook for a currency that had been source of stability in Asia during past crises. Wall Street drooped on Thursday as crude oil futures continued to wallow at multi-year lows against a backdrop of oversupply as well as a stronger dollar following the US Federal Reserve’s widely anticipated tightening on Wednesday. Ahead of the policy review, the dollar slipped about 0.1 percent against the Japanese currency to 122.46 yen, and was up over 1.2 percent for the week. The dollar index, which tracks the greenback against a basket of six rivals, edged down about 0.3 percent to 99.968, after jumping 1.2 percent on Thursday, its biggest rise in over a month.

Citigroup Inc., the world’s biggest foreign-exchange trader, Bank of America and Nomura recommend selling the won and Taiwan dollar against the greenback given their close economic ties with China. Asia’s largest economy accounts for 34.3 percent of South Korea’s total trade, according to the Japanese brokerage, followed by the Philippines at 25 percent and Thailand, Malaysia and Taiwan at about 22 percent each. Exports contracted for nine months this year in China, 11 months in South Korea and 10 months in Taiwan. “They’ve already learned that it will trigger devaluations elsewhere,” said Joel Kim, the Singapore-based head of Asia-Pacific fixed income at BlackRock Inc., which oversees $4.5 trillion. “The fact that exports have come down is a global demand problem rather than a competitiveness issue in China itself.

China is likely going to favor macro-stability and the currency is part of it.” The IMF predicts growth in Asia’s developing economies will slow to 6.4 percent next year from 6.5 percent in 2015, with China’s expansion decelerating to 6.3 percent from 6.8 percent. Further easing is also forecast in Indonesia, Thailand and India. “This impending Fed tightening cycle is without a strong synchronized global recovery and export rebound,” said Bank of America’s Piron. “Typically this would be bullish for Asian currencies as they would appreciate as their current-account surpluses expand on improving exports.

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