April Angst Follows March Madness for Emerging-Market Currencies

www.bloomberg.com

By Lilian Karunungan and Anuchit Nguyen

• Rand drops with ringgit as Brent crude drops for third day
• Korean won weakens after Fed's Rosengren sounds hawkish note

Emerging-market currencies extended their retreat from an eight-month high as falling oil prices and hawkish comments from a Federal Reserve official damped demand for developing-nation assets.

South Africa’s rand led declines and Malaysia’s ringgit weakened as Brent crude headed for its biggest three-day drop in seven weeks on concern a deal among major producers to reduce output will fail. South Korea’s won dropped after Boston Fed President Eric Rosengren said market expectations for just one U.S. interest-rate increase this year may be too pessimistic. Emerging-market stocks fell, led by Hong Kong’s gauge of mainland companies.

Developing-nation exchange rates have dropped this month amid weakness in commodity prices after surging by the most since at least 1998 in March as the Fed laid out a more gradual approach to tightening monetary policy. Currencies that strengthen beyond levels warranted by economic fundamentals may disrupt efforts by emerging-market central banks to rein in current-account deficits, with Bank Indonesia Governor Agus Martowardojo saying last month he didn’t want the rupiah to get too strong.

“Lower commodity prices and worries of Fed rate-hike prospects have caused emerging-market currencies to weaken again," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “The run in emerging markets has come to a point where the central banks may not be too comfortable."

Currencies, Bonds

The MSCI Emerging Markets Currency Index fell 0.6 percent as of 8:20 a.m. in London. The gauge is down 0.9 percent in April after surging 5.2 percent in March. The rand slumped 0.9 percent, the won weakened 0.8 percent, and the ringgit lost 0.7 percent.

Brent crude declined 0.6 percent, taking its three-day drop to 5.4 percent, and extending its loss from this year’s high set on March 18 to 12 percent. A Bloomberg gauge of raw-material prices slipped 0.1 percent after dropping 2.9 percent in the previous five days.

India’s rupee fell for the first time in seven days, losing 0.3 percent, after the central bank cut interest rates to support the economy. China’s yuan strengthened 0.23 percent in Shanghai as market reopened after a public holiday. The yield on China’s 10-year bonds climbed four basis points to 2.88 percent.

Stocks

The MSCI Emerging Markets Index dropped 1.4 percent, taking its decline in April to 2.6 percent following a 13 percent surge in March. All 10 industry measures fell, led by information technology and energy shares. Samsung Electronics Co. was the biggest drag, losing 3.5 percent.

The Hang Seng China Enterprises Index in Hong Kong declined 1.7 percent, while benchmark gauges in Taiwan and Thailand were down 1 percent. The Shanghai Composite Index advanced 1.5 percent amid speculation government efforts to spur the economy will support the market.

“The U.S. interest-rate outlook is really unclear with Fed officials giving different signals,” said Warut Siwasariyanon, head of research at Asia Wealth Securities Co. in Bangkok. “We’re advising our clients to remain cautious on equities investments” and expect oil to keep falling because of the supply glut, he said.