Emerging Assets Halt Five-Day Gain as Oil Falls, Ringgit Weakens

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market assets halted a five-day gain as a slide in oil prices sapped demand for higher-yielding assets.

A gauge of developing-nation shares dropped from the highest level in a year, led by losses in Slovenia, Estonia and the Philippines. Malaysia’s ringgit fell the most among emerging-nation currencies as the country derives 20 percent of its revenue from energy-related sources. The Korean won weakened as the central bank governor said there was still room to adjust policy after keeping interest rates on hold.

“Renewed worries about the oil-price drop should weigh significantly on developing countries’ assets as most of their economies depend on energy and commodity exports for recovery,” said Komsorn Prakobphol, a senior investment strategist in Bangkok at Tisco Financial Group Pcl, whose mutual-fund unit manages about $5 billion. “We advise investors to take some profit on their equity holdings. Valuations are too high and it’s a good opportunity to lock in some profit.”

Developing-nation assets have been largely tied to the fortunes of oil this year as the commodity is seen as a gauge of the outlook for global growth. The rally in emerging assets from their lows in January is coming under increasing threat as crude prices have declined since the middle on June on concern there is a global oversupply.

Stocks
The MSCI Emerging Markets Index of shares fell 0.2 percent as of 8:52 a.m. in London after rising 4 percent during the previous five days. The gauge closed Wednesday at the highest level since July 2015.

Equity indexes declined 1 percent in both Slovenia and Estonia, and 0.9 percent in the Philippines.

Taiwan’s Taiex fell 0.8 percent on concern the local dollar’s recent gains will weigh on electronics exports. Taiwan Semiconductor Manufacturing Co. was the biggest drag on the equity benchmark after the index and currency climbed to one-year highs on Wednesday.

“It’s normal for the market to take a break after the Taiex closed at around 9,200 yesterday, which is an important psychological level,” said Ben Lin, a money manager at Uni-President Assets Management Corp. in Taipei. “Over the past few days, the Taiwan dollar has appreciated more, so people will start to expect that to affect third-quarter earnings for electronics companies.”

Chinese stocks traded in Hong Kong rose for a sixth day as speculation the start date of an exchange trading link with Shenzhen will soon be announced boosted banks and brokerages. The Hang Seng China Enterprises Index gained 1.2 percent.

Currencies
The ringgit fell the most in a week as Brent crude extended losses after tumbling 2.1 percent on Wednesday when U.S. stockpiles unexpectedly expanded. Malaysia loses 450 million ringgit in annual income for every $1 decline in oil, Prime Minister Najib Razak said in April.

Malaysia’s currency dropped 0.6 percent to 4.013 per dollar.

The won weakened after the Bank of Korea held its key rate at a record-low 1.25 percent and Governor Lee Ju Yeol said the central bank still had room to adjust policy.

The currency dropped 0.5 percent to 1,099.72 per dollar after appreciating to 1,091.07 on Wednesday, the strongest level since May 2015.

“Governor Lee’s comment that the BOK still has policy room reaffirmed its accommodative stance and the possibility of a rate cut in the near future,” said Chung Sung Yoon, a currency analyst at Hyundai Futures Corp. in Seoul. “I expect the won to rise to around 1,080 this month though, and the longer term direction will probably be determined by the policy stance of global central banks, particularly the U.S. and the Bank of Korea.”

The MSCI Emerging Markets Currency Index slipped 0.2 percent, trimming this month’s advance to 1.5 percent.

Not everyone is bearish.

“Lower oil prices and possibly some lightening of short U.S. dollar positions ahead of the U.S. retail sales data tomorrow, seems to be weighing on Asian currencies,” said Divya Devesh, a foreign-exchange strategist at Standard Chartered Plc in Singapore. “In our view, the backdrop in the short-term is still quite supportive for further gains for Asian currencies given ample global liquidity and still low probability of a Fed rate hike this year.”

Source: Bloomberg Business News