Emerging currencies decline to record as Fed outlook dims appeal

[MANILA] Emerging-market currencies weakened as speculation mounted that the Federal Reserve will raise interest rates next month, hurting the appeal of riskier assets.

South Korea's won fell 0.6 per cent versus the dollar and Malaysia's ringgit sank to the lowest level since 1998. The Thai baht slid toward a six-year low before an interest-rate decision. A Bloomberg gauge of 20 developing-nation currencies dropped for a fifth day to a record low. The MSCI Emerging Markets Index lost 0.2 percent to 891.74 at 1.02 pm in Hong Kong, with 325 stocks rising and 182 falling.

Fed Bank of Atlanta President Dennis Lockhart said in an interview with the Wall Street Journal that it would take a significant deterioration in economic data for the central bank to delay an adjustment in September. US monthly payrolls data is due this week as the Fed mulls whether to raise the near-zero interest rates that have buoyed demand for riskier assets.

"All eyes are on the Fed amid rising expectations that US rates will go up next month, boosting the appeal of the dollar," said Jonathan Ravelas, chief market strategist at BDO Unibank Inc, the largest Philippine bank by assets. Investors should "underweight bonds and accumulate equities on weakness," he said.

The won was poised for the weakest level since June 2012. The ringgit declined 0.6 per cent. The baht fell 0.2 per cent. The Bank of Thailand will keep its key rate unchanged at Wednesday's review, according to 21 of 23 economists surveyed by Bloomberg. Two expect a cut to 1.25 per cent.

MSCI's developing-nation index has fallen 6.8 per cent this year and trades at 11.2 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has risen 2.7 per cent and is valued at a multiple of 16.3.

Seven out of 10 industry groups rose, led by health-care companies and energy stocks. Cnooc climbed 1.5 per cent in Hong Kong, pacing gains for energy shares. Oil advanced for a second day before US government data forecast to show crude stockpiles declined in the world's biggest consumer.

Hermes Microvision tumbled 9.8 per cent to a one-year low in Taipei, the biggest drop in the developing-nation gauge. TPK Holding fell 4.1 per cent toward a record low as the stock's rating was cut to underperform at Credit Agricole SA.

The Shanghai Composite Index fell 1.5 per cent, its fourth loss in five days, as turnover waned and concern grew that unprecedented government intervention is driving away investors. The value of shares traded on the index has fallen 65 percent from this year's high in June as trading halts, regulatory measures to curb bearish transactions and a suspension of initial public offerings discourages investors.

Hong Kong's Hang Seng China Enterprises Index gained 0.7 per cent. The Philippine Stock Exchange Index rose for a sixth day, adding 0.8 per cent, after government data showed inflation slowed to a record in July.

India's S&P BSE Sensex climbed 0.8 per cent as Bharti Airtel increased after its results beat estimates and steelmakers climbed on speculation the government is considering raising import tax on some products. Equity gauges in Taiwan, Vietnam and Indonesia rose 0.5 per cent.

BLOOMBERG