| HONG KONG/SINGAPORE
HONG KONG/SINGAPORE Nov 29 Asian markets have
steadied after two weeks of heavy losses in which investors
rushed funds out of the region as they repositioned for a Trump
presidency, but these markets remain vulnerable to further sharp
The dollar has given up some gains after it climbed more
than 6 percent in the last two weeks against a trade-weighted
basket of currencies, while Asian stocks have found their
feet after heavy losses.
Analysts warn, however, that the calm may be temporary.
"It is too early to say whether the worst is over for Asian
markets," said Santitarn Sathirathai, an economist at Credit
Suisse based in Singapore. "A further dollar rally or a hawkish
Fed may trigger more outflows."
Emerging securities markets lost more than $16 billion and
their currencies fell hard in the first two weeks following
Trump's election, highlighting the vulnerability of this
November official foreign exchange reserves data for most
Asia-Pacific countries including China, South Korea and Taiwan,
will be published next week.
Central banks have intervened by selling foreign currencies
to stem losses in their own currencies, and that could show up
as a fall in foreign exchange reserves, with China thought to be
among those selling dollars.
Stock markets from Hong Kong to India have seen large
outflows, and there has been heavy selling of Korean and
Malaysian debt as investors assess the impact of Trump's win on
the region and where the best returns now are.
END OF CHEAP MONEY
Asia has benefited handsomely since the global financial
crisis as major central banks have flooded markets with cheap
stimulus cash, but as the U.S. approaches more normal monetary
policy, risk aversion may return.
The immediate impact of Trump's election was for some of
that stimulus money to head home as investors decided his
spending plans could spark some growth and inflation in the
United States, raising expectations for a quickening of the
Federal Reserve's tightening cycle.
That view saw U.S. Treasury yields surge, lifting the dollar
and sharply eroding Asia's yield differential, which is needed
to reward investors for the extra risk they take. On Friday,
10-year U.S. Treasury yields rose to 2.417 percent,
their highest since last July, up more than half a percentage
point in roughly two weeks.
A Bank of Merrill Lynch survey of fund managers conducted in
the week after the U.S. elections shows a steep drop in emerging
market allocations to a net 4 percent overweight from 31 percent
before, its biggest drop in five years.
In the two weeks ending Nov. 23, about $6.2 billion had left
Asian equity markets while emerging market bond funds, including
Asia, have seen outflows of $9.6 billion in the last three
weeks, according to a Jefferies analysis of EPFR Global data.
"From now, some of the adjustments that need to take place
within each of the Asian economies is the natural progression,
to digest away some of the excesses," said Ng Kheng Siang, head
of Asia Pacific fixed income at State Street Global Advisors.
India saw outflows of $430 million from its bond markets in
the month to Nov. 23 and Korea has lost more than $1.4 billion
so far this month, according to exchange data.
Malaysia has been among the hardest hit, with its ringgit
currency declining more than 5 percent in the last two weeks,
forcing the central bank to take steps to protect the currency.
"We'll probably sit tight for the time being before becoming
more constructive in the more emerging parts of the world at
this point," said John Doyle, chief investment officer for
multi-asset and equity strategies at UOB Asset Management.
(Reporting by Saikat Chatterjee and Nichola Saminather;
Additional reporting by Jong Woo Cheon in Singapore and Vikram
Subhedar in London; Editing by Eric Meijer)