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Asian stocks, currencies drop on inflation concerns

Asian stocks

The weakness came on the back of strength in the dollar, which was holding on to recent gains spurred by this week’s advances in U.S. Treasury yields

Most emerging market currencies in Asia declined on Thursday in a broad selloff triggered by fears about rising price pressures and a hawkish outlook for policy tightening by global central banks, while the rupiah bucked the trend to be the sole gainer.

The inflation rate in Indonesia – Southeast Asia’s largest economy – accelerated slightly in May but remained within the target range of the central bank, helping the rupiah rise 0.6% against the dollar to its highest level since April 28.

The data was just slightly softer relative to expectations. But what the data does show is that the Bank of Indonesia’s tightening cycle is just around the corner, said Daniel Dubrovsky, a strategist with IG Asia.

Other regional currencies were lower, with the Korean won dropping as much as 1.4% to see its biggest intraday fall in more than three months. Malaysia’s ringgit slipped for the third straight day, falling 0.3%.

The weakness came on the back of strength in the dollar, which was holding on to recent gains spurred by this week’s advances in U.S. Treasury yields.

This generally bodes ill for market sentiment, where emerging market assets face pressure due to the rising cost of foreign debt repayment, Dubrovsky said, referring to rising Treasuries.

A stronger U.S. dollar also makes that increasingly challenging. As such, we likely are seeing capital flowing out of the EM Asia region, he said.

Adding to worries about hawkish monetary policy, the Bank of Canada opened the door to a more aggressive pace of interest rate hikes while inflation data from Europe fanned fears that the European Central Bank might accelerate its tightening path.

Asian equities fell, tracking overnight weakness on Wall Street.

South Korean shares led the declines with a 1.2% drop. A private-sector survey showed that the country’s factory activity growth slowed in May amid supply-chain disruptions due to China’s COVID-19 lockdown measures.

Shares in Singapore fell 0.5%, the Philippines market lost 0.4% and Thailand’s main index was down 0.3%.

Taiwanese shares dropped 0.7%, while Jakarta stocks were 0.2% lower.

Asian equities continued to witness foreign outflows for a fifth consecutive month in May, hit by concerns over monetary tightening measures by major central banks and supply chain disruptions due to strict lockdowns in China.

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