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Anxious investors bail out of Asia
Publication Date : 21-08-2013
The tide of money surging out of Asia gathered speed on Tuesday as anxious investors bailed out of shares, bonds and currencies on fears that the United States will harden up plans to wind down its huge economic stimulus.
The panic sent regional bourses diving and hammered commodities like gold and oil before spreading to Europe, where markets were down for a second day.
Billions of dollars have already been pulled from emerging economies with worse to come, say analysts, while currencies from Delhi to Jakarta are coming under fierce pressure.
Investors fear that any easing of the US stimulus will reduce the liquidity that has kept world markets buoyant and send American interest rates up - an outcome that might make investments there more attractive than those in emerging economies.
"Whatever capital flows that were going into emerging markets in the past three to four years, we are seeing them reversing back to the West, to the US and the European countries," said Desmond Chua, an analyst at global trading firm CMC Markets.
Stephen Jen, co-founder of hedge fund SLJ Macro Partners in London, warned: "This could be serious for Asia. The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the US."
So far, Indonesia has borne much of the damage in Asia. Its shares fell 3.2 per cent yesterday and are down almost 20 per cent since their peak in May.
The rupiah is bleeding as well, down 2 per cent yesterday to a four-year low against the US dollar, as investors fret over the country's slowing economy, high inflation and rapid capital outflows.
A similar story is shaping up in India where the rupee plunged to a record low against the greenback, as lower growth and obstacles to economic reforms outweigh government moves to halt the currency free fall.
Analysts have flagged the Malaysian ringgit and Thai baht as next in line. Like the rupee and rupiah, both are under stress from falling exports, though they are less reliant on capital inflows and so are seen as less vulnerable.
Thailand's stock index lost 2 per cent yesterday, after the country reported on Monday that it had slipped into a technical recession in the April to June quarter.
Elsewhere, Tokyo sank 2.6 per cent, Hong Kong shed 2.2 per cent, Kuala Lumpur lost 1.9 per cent, Seoul slipped 1.6 per cent and Shanghai fell 0.6 per cent.
Singapore's Straits Times Index dipped 1.4 per cent on Tuesday, extending a fall that has now wiped out all gains for the year.
European markets had hit a two-week low by midday yesterday, but the US opened slightly higher, ahead of the Federal Reserve releasing its July meeting minutes today.
This will be keenly read for hints of whether the Fed will taper its US$85 billion monthly bond-buying programme as soon as next month.
Since US Fed chairman Ben Bernanke first flagged the potential tapering in May, the MSCI Asia Pacific Index of stocks has lost 9 per cent, according to Bloomberg.
From January to July, US$7.6 billion flowed out of emerging market funds while US$155.6 billion went into developed market products, it added.
"The carnage in emerging markets is a bit overdone," said IG Markets strategist Kelly Teoh.
"Honestly, the US Fed is not really taking away the punchbowl, just dialling it back. But everyone wants to play safe right now."