BENGALURU: Emerging Asian stock markets were higher on Tuesday and currencies traded broadly flat against a stronger dollar as investors braced for fewer rate cuts by the Federal Reserve in the coming year.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose up to 0.6%, tracking overnight gains on Wall Street. The MSCI index of international emerging markets equities also rose 0.3%.
Equities in Malaysia, Singapore and Thailand added between 0.3% and 0.5%.
“Positioning levels have remained relatively subdued in Asia, with most markets near neutral. The recent trend, however, remains consistent, with rising bearish flows, which has rapidly reduced net positioning,” analysts at Citi said in a note. Fed policymakers lowered their rate cut projections for 2025 last week to 50 basis points, from 100 basis points, and increased their inflation forecast.
Markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging and the dollar to new highs.
Against a basket of currencies, the US dollar was perched near a two-year peak. US Treasury yields also rose overnight, with the 10-year yield reaching its highest level in nearly seven months.
Higher US rates could lead to currency and capital flow problems for emerging markets. The dollar’s yield advantage could drive capital out of their markets while weakening their currencies, potentially spawning inflationary pressures and market volatility.
The Indonesian rupiah was last down 0.2%, still hovering near the 16,200 per dollar level, and the Chinese yuan was near a 13-month low.
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