Southeast Asian markets wrap: Stocks pare early gains as Fed pause fuels global downturn fears

Southeast Asian markets wrap: Stocks pare early gains as Fed pause fuels global downturn fears

KUALA LUMPUR (NewsRise) — Southeast Asian stock markets gave up early gains to end mostly flat to lower on Friday as renewed concerns of a global slowdown offset early gains following Federal Reserve’s decision to keep interest rates at near-zero levels.

     Singapore’s key index fell 0.56% to 2,879.59 points, erasing a near one-percent jump earlier in the session. Indonesia’s benchmark index, which rose 0.82% to 4,414.46 points earlier, trimmed gains to close nearly flat at 4,380.32 points. The Thai SET Index ended little changed, up 0.04% at 1,390.32 points, while Philippines’ shares rose 0.11%.

     Sentiment for Southeast Asian shares worsened after Europe opened lower and U.S. stock futures fell 0.36%. Asian stocks outside Japan rose, after an early bout of currency market volatility. Chinese stocks rose, led by developers on improving property data. However, Japan’s benchmark Nikkei 225 index, fell nearly 2%.

     “Fed’s stance is a reflection of growing malaise in the global economy,” Taimur Baig, chief economist, Asia for Deutsche Bank, said in a note. “Even without a crisis, a slowing of the Chinese economy is causing major headwinds to Asian exports, investment, and fund flows.”

     Malaysian shares fell 0.72% at 1,669.45 points as investors took profits after a near-five percent jump earlier this week driven by the government’s plans to inject as much as $4.6 billion into the country’s stock market.  A surge in crude oil prices had lifted Malaysian stocks more than 2% on Thursday.

     “In the medium term, investors are looking for clear signs on whether there’s going to be an improvement in corporate earnings and the ringgit,” said Kuala Lumpur-based Patrick Chang, head of Southeast Asian equities at BNP Paribas Investment. “We do see a bit of value in Malaysia and going forward, if the oil prices continue to rise, then there’s a case for Malaysian equities.”

     Malaysian conglomerate, Sime Darby, with businesses ranging from plantations to hospitals, led losses, falling 8.79% to 7.37 ringgit. Agro-food company, QL Resources, fell 4.03% to 4.05 ringgit.

     The Fed’s move to delay rate increases drove the dollar index down to three-week lows, lifting Asian currencies. Asia’s worst performing currency in 2015, the Malaysian ringgit, led gains in Southeast Asia Friday, rising 1.04%. The Singapore dollar rose 0.52%, while the Indonesian rupiah rose 0.59%. The Thai baht rose 0.59%, and the Indian rupee rose to a near one month-high.

     “The market seems to expect the Fed to wait until next year to raise rates and if that is the case, we are not going to see much upside in the U.S. dollar which in a way, helps to support Asian currencies,” said Bernard Aw, a market strategist at IG in Singapore.

     Asian markets have been bracing for the Fed’s first rate increase in nearly a decade, worried that the move will trigger another “taper tantrum.” In 2013, foreign investors pulled cash out of the region in droves at the first hint of the U.S. central bank scaling down its quantitative easing programme.

     The Bank Indonesia Thursday kept its key policy rate unchanged, as the monetary authority seeks to keep a check on inflation.

     The central bank “attributed increased (Indonesian rupiah) depreciation since the (yuan) devaluation to a surge in demand for the (U.S. dollar) to serve foreign debt and noted continued market intervention in accordance with the currency’s fundamental value and financial system stability,” Prakash Sakpal, an economist with ING, said in a note.

     “Our baseline scenario is a muddle-through one in which Fed lift-off and China hard-landing fears don’t intensify and recent pace of IDR depreciation and credit spread widening slows in the fourth quarter,” Sakpal said.

     The Indonesian rupiah is Asia’s second-worst performing currency in 2015, after the Malaysian ringgit. Both currencies are trading at 17-year lows.

     “With respect to policy action, the best Asian governments can do is support domestic demand through fiscal policy, but the impact is likely to be small and of medium-term nature,” Deutsche Bank’s Baig said. “The chance of a FX crisis-induced rate hike scenario in economies like Indonesia and Malaysia is extremely remote, in our view. Indeed, we think Bank Indonesia will cut rates in 1H16 if the rupiah stabilizes.”

Southeast Asian markets wrap: Stocks pare early gains as Fed pause fuels global downturn fears