Asian markets, currencies rattled by uncertainty over impact of a Trump presidency

Businessmen walking in front of an electronics stock indicator flashing Tokyo's closing rate, on Nov 10, 2016.
Businessmen walking in front of an electronics stock indicator flashing Tokyo's closing rate, on Nov 10, 2016. PHOTO: AFP

Wave of currency volatility sweeps Asia amid worries that higher US govt spending may drive up interest rates

Asian markets suffered sharp sell-offs yesterday as ongoing uncertainty over the impact of a Trump presidency fuelled a volatile streak that started with the shock result of the United States presidential election.

A wave of currency volatility also swept Asia on the back of fears that President-elect Donald Trump's plans to ramp up government spending in the US could drive up interest rates and lead to capital outflows from Asia's emerging markets.

Hong Kong's Hang Seng Index slid 1.35 per cent, while Singapore's benchmark Straits Times Index fell 0.69 per cent to close at 2,814.60, although this is still higher than that on Wednesday, the day of the election results. The Philippines tumbled 2.88 per cent, the FTSE Bursa Malaysia KLCI Index fell 1.12 per cent, and Indonesia's Jakarta composite sank 4.01 per cent. Japan's Nikkei 225 bucked the trend, gaining 0.18 per cent as the yen weakened against the strengthening US dollar.

Regional currencies were also walloped. The Indonesian rupiah plunged more than 3 per cent in its biggest drop in five years, prompting the central bank to intervene, while the Australian dollar was down 2 per cent and Malaysia's ringgit lost more than 1 per cent.

The greenback also strengthened against the Singapore dollar. One US dollar could buy about $1.409 yesterday, from $1.39 on Wednesday.

 
 

In a statement yesterday, the Monetary Authority of Singapore said its policy framework provides sufficient flexibility to accommodate fluctuations in the bilateral exchange rates of the Singapore dollar against other currencies.

The central bank added that it "stands ready to curb excessive volatility" in the Singapore dollar.

Over in Malaysia, as investors sold government bonds, Bank Negara tried to keep the spot rate steady by deterring sellers there, reports said. In China, as the yuan erased the day's losses, there was speculation of central bank intervention, Bloomberg said.

Analysts said the strong greenback was buoyed by expectations that Mr Trump's plans for huge spending projects will drive up inflation in the US.

As a result, investors are betting that the Federal Reserve will hike interest rates more aggressively next year to keep prices under control.

Markets were likely also worried about the protectionist views on global trade Mr Trump expressed during his campaign. If these views are enforced, it would hit trade-dependent Asian economies hard, noted Phillip Futures investment analyst Woon Tian Yong. This further weighed on regional currencies relative to the US dollar.

An ANZ report agreed, noting that Asian currencies are likely to remain weak against the US dollar next year.

"Our bearish view on Asian currencies stems primarily from Mr Trump's economic policies promised during his campaign.

"His protectionist stance on global trade is negative for Asian growth, given the region's high dependency on trade. Under a Trump presidency, the Trans-Pacific Partnership (TPP) will be under serious threat," the report said.

Mr Trump had said on the campaign trail that he intends to take the US out of the TPP, a free trade pact signed by 12 countries - including Singapore - that together account for 40 per cent of world trade. The US has not ratified the TPP.

Mr Woon expects the greenback to rise further against the Singdollar. "A rate hike by the Federal Reserve in December will add further appreciative pressures on the greenback," he noted, adding that the US currency might reach $1.44 going into next year.

A version of this article appeared in the print edition of The Straits Times on November 12, 2016, with the headline 'Asian markets, currencies rattled by uncertainty'. Print Edition | Subscribe