The latest selloff was triggered by markets recalibrating their expectations of a Trump presidency on broad economic policy, with a growing consensus that his policies will be inflationary and push US rates up driving investors out of emerging markets and into dollar-based assets.
Yields on benchmark 10-year Treasuries have spiked 41 basis points in the past two days as investors scrambled to readjust their positions.
Emerging markets in Asia are particularly vulnerable to hot money outflows, and deep uncertainty over how broad US and international policy will ultimately play out under Trump has unsettled investors.
On Friday's Asian session, the differential between the onshore spot rate in the Malaysian ringgit and the offshore NDF rate spread hit its widest since 2009.
Ringgit one-month non-deliverable forwards plunged to 4.5280 per dollar, while spot ringgit stood at 4.2670. As a result, the dollar/ringgit's NDFs premium over the dollar/ringgit spot widened to 0.2610, the widest since at least April 2008, according to Reuters data.
The subdued spot rate belied the drama because Bank Negara Malaysia was acting to stem any panic, traders said.
Malaysia's central bank governor Muhammad Ibrahim told reporters on Friday the ringgit should not be priced out of sync with fundamentals, and that it has a responsibility to tell banks to take temporary measures to calm the market
"We don't want to be dictated by factors that have nothing to do with the country's fundamentals," Ibrahim said.
Traders in Kuala Lumpur said the central bank had told them not to quote offshore rates and was approving large ringgits sell orders on a one-off basis in a bid to keep a lid on things. The tactic seemed to work with onshore trade reportedly very thin.
Hot money headache
However, yields on Malaysian government bonds told another story. Yields on 10-years have widened 22 basis points since Wednesday, while those on 20-year and 30 year bonds have widened 21 basis points and 10 basis points respectively over the same period.
Almost 40 percent of Malaysian government bonds are in foreign hands.
Malaysian stocks were down almost one percent.
Indonesian markets also dived in early trade. Indonesia has enjoyed relatively high inflows into stocks and bonds markets in the past few months, making it vulnerable to hot money outflows at times of uncertainty.
The rupiah fell as much as 2.7 percent, while Jakarta Composite Index fell as much as 3.2 percent to its lowest since Sept 16.
Bank Indonesia sold dollars to stabilize the currency, traders said, but it still fell to a four-month low.
Nanang Hendarsah, an official at BI, said the rupiah's sharp drop was caused by sudden hedging activity in the NDF market, but noted outflows from Indonesian markets were contained so far.
Yield of Indonesia's 10-year government bonds jumped on Friday to 7.462 percent from 7.417 percent. Foreigners own 38.4 percent of outstanding Indonesian government bonds.
Philippine stocks were also caught in the selloff with the main index tumbling more than 2.5 percent. The Philippines peso, however, was steady at 48.99.
The short term might prove a head-spinning affair for investors, especially for those in emerging markets.
"With the market now pricing in low expectations of further US Federal Reserve rate hikes beyond the one expected in December, Mr. Trump’s economic policies present an upside risk to rates," said Khoon Goh, head of Asia research at ANZ.
"This, coupled with the depreciation pressure on Asian currencies, has put serious pressure on Asia’s carry trades."
source: interaksyon.com
