Asian stocks and currencies tumble on rate hike, China Covid-19 woes

BENGALURU (6 May): Emerging Asian currencies tumbled on Friday (May 6), with the yuan hitting an 18-month low, after investors raised concerns that rising interest rates and strengthening by China of its “zero-Covid policy” could hamper economic growth across the region.

The Taiwanese dollar and Indian rupee led the losses, falling 0.7% each against the greenback, while the ringgit fell to its lowest level in more than two years.

China has said it will fight any comments and actions that distort, doubt or deny the country’s Covid-19 response policy, state television reported on Thursday, after a meeting of the country’s top decision-making body. .

The yuan fell 0.4% to its lowest level since November 2020, while Chinese stocks fell 1.8% after the news.

“China’s stance could serve to dampen some hopes of any policy shifts from Covid-19, suggesting that the economic recovery will remain protracted and uneven,” IG analysts said in a note.

The selloff also comes amid fears that central banks around the world will have to raise policy rates even more aggressively than expected to fight inflation, potentially pushing economies into recession.

The Bank of England raised interest rates by 25 basis points (bp) on Thursday, but signaled recession risk and double-digit inflation growth in Britain, spooking markets that witnessed to a short-lived rally thanks to the US Federal Reserve (Fed) announcing a rate hike.

Equities in the region also suffered, with benchmarks in the Philippines, South Korea and India falling more than 1% each. Singapore’s benchmark fell 1.5% and was heading for its worst day in more than two months.

Southeast Asian economies have started mirroring the Fed and raising interest rates to deal with price pressures exacerbated by the Russia-Ukraine conflict – and support economic growth as the region emerges from a a downturn caused by a pandemic.

Meanwhile, Bank Negara Malaysia meets next Wednesday and is expected to raise the key overnight rate (OPR).

“We expect the OPR to be raised by 25 basis points to 2% on May 11, followed by another 25 basis points hike in Q3 2022 which will take the OPR to 2.25% by the end of the year. end of the year,” said Julia Goh, a senior economist for Malaysia at UOB.

Regional markets were also under pressure following a rise in the US Treasury yield that broke through the 3% mark after data showed that labor market conditions in the United States continued to tighten.

This led the yield on Singapore’s benchmark 10-year Treasury paper to climb 2.730% to its highest level in more than six years.

Malaysia’s benchmark 10-year yield also hit a more than five-year high at 4.466%.

Oil prices continued to climb due to supply issues in anticipation of an impending European Union (EU) embargo on Russian oil.

Vietnam’s benchmark stock index posted its fifth consecutive weekly loss amid a string of high-profile corporate arrests, triggering a $40 billion (about RM174.72 billion) wipeout of national stocks .

Strong points:

  • Malaysia, the world’s second-largest palm oil producer, to regain palm oil market share in the EU amid global shortages
  • The Indian rupee fell 0.7%, on track for its biggest decline in two months
  • Shanghai says it has brought China’s worst Covid-19 outbreak under ‘effective control’