Asian markets trade lower on risk aversion, strong dollar

ASIAN equity markets fell on Monday, and the Malaysian ringgit and Indonesian rupiah led currency declines against the safe-haven greenback as investors exercised caution amid the potential escalation of the Israel-Hamas conflict.

The ringgit touched its lowest level since November 2022, weakening 0.3% by 0357 GMT. The rupiah followed suit to give up 0.2%, while the Philippines peso hit its lowest in nearly a week.

Equities in Southeast Asia were down, with markets in Jakarta and Kuala Lumpur losing nearly 0.4% each.

Malaysia said last week it intended to introduce a capital gains tax and a tax on high-value goods and gradually cut subsidies to aid recovery in the country’s fiscal position, as a slowdown in the economy strained government spending.

Elsewhere, the U.S. dollar stood near a one-week high against a basket of currencies as risk sentiment remained fragile amid the Israeli-Hamas war, which has shed light on rising geopolitical risks for financial markets.

Market participants were looking forward to a speech by Federal Reserve Chair Jerome Powell on Thursday for further clues on the U.S. central bank’s rate outlook.

The Israeli shekel fell to more than an eight-year low of 3.9900 per dollar in early Asia trade.

“(Emerging markets) Asia FX will inevitably be on the back foot under these conditions, especially if the double whammy of higher oil prices and stronger USD take any shine out of softer yields,” said Vishnu Varathan, head of economics & strategy at Mizuho.

Investors are keenly awaiting a slew of economic data this week, including central banks’ monetary policy meetings in Korea and Indonesia on Thursday.

The focus remains on China, Southeast Asia’s largest trading partner, which will release data points including gross domestic product, retail sales and industrial production on Wednesday.

China’s central bank ramped up liquidity support to the banking system as it rolled over medium-term policy loans on Monday, but kept the interest rate unchanged as expected.

Chinese yuan depreciated by 0.1%, while mainland stocks gave up more than 0.4%.

“CNH (yuan) downside risks remain intact amid uncertainty premium on both ends with USD boosted by geopolitics and CNH dimmed by prospects of a durable growth boost,” Varathan said.

In South Korea, the won shed over 0.3%, with the currency marking its lowest level since Oct. 4.

Shares in South Korea lost more than 1%, while those in Thailand retreated as much as 2.4% to mark the lowest level since December 2020.

The Thai benchmark is on track for its largest single-day percentage drop since March 14.

HIGHLIGHTS:

** Indonesia Sept exports down 16.2% y/y, more than expected

** South Korea plans to offer bigger tax refunds to foreign tourists – finmin

** Indian cenbank likely selling dollars to keep rupee off record low -traders – Reuters