South Korea leads Asian equities lower on recession fears, forex mixed

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BENGALURU (June 20): Most emerging Asia stocks fell on Monday as recession fears loomed large, fuelled by hawkish signalling from the US Federal Reserve and central banks across Europe, with South Korea leading losses.

South Korea’s benchmark fell up to 2.5%, hitting its lowest levels since November 2020, as investor sentiment turned sour on global recession worries.

Investors globally expect more aggressive moves from the Fed, after it said its commitment to containing inflation was “unconditional”, while Fed Governor Christopher Waller on Saturday said he would support another hike of 75 basis points in July.

Still, with the US markets on holiday on Monday, “there may be less indication of overall risk sentiments with lighter trading volume to start the week”, Yeap Jun Rong, market strategist said.

Equities in Kuala Lumpur and Jakarta slipped over 1%, while Bangkok was down 0.4% in its fourth session of consecutive losses.

Asian currencies were mixed, with the South Korean won down 0.6%, at its lowest since March 2020 and one of the worst-performing currencies in Asia this year.

The country’s finance minister reiterated the FX authorities’ recent stance that they would take necessary steps to stabilise the currency market in case of excessive volatility.

The Chinese yuan stood out with a 0.6% gain after the country left its benchmark lending rates for corporate and household loans unchanged.

“After this rate pause, the government should hand out more fiscal stimulus as monetary policy is now a secondary policy tool for supporting the economic recovery,” Iris Pang, an economist with ING said in a note.

The Indonesian rupiah fell marginally by 0.1%, ahead of a policy decision by its central bank later this week. Investors will look to whether Bank Indonesia maintains its policy rate or hikes it, as has been the case with most other regional central banks, in a catch-up response to the Fed.

The Philippine peso dropped 0.4%, touching a more than 3½-year low during the session. The country’s central bank’s incoming governor has signalled the prospect of a series of rate hikes this year that could extend up to 2023 to tame inflation.

Meanwhile, the Singapore dollar and the Indian rupee gained 0.3% and 0.2%, respectively.

Highlights:

  • Garuda Indonesia’s proposed restructure of its more than US$9 billion debt won the approval on Friday of a majority of creditors, court officials said, staving off the risk of bankruptcy at the embattled flag carrier
  • Indonesian 10-year benchmark yields are up 3.8 basis points at 7.504%, the highest since May 2020
  • Thailand’s central bank on Friday said its six interest rate meetings a year were sufficient for obtaining information needed for considering monetary policy, hosing down market speculation about an urgent rate meeting.

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