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Asia: Stocks up, US dollar rally pauses in relief for emerging markets

Wednesday, November 30, 2016 - 11:58
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Asian stocks rose to three-week highs on Wednesday, supported by gains on Wall Street and growing expectations the US dollar may be peaking after a hefty rally since the US election pulled funds out of emerging markets.

[HONG KONG] Asian stocks rose to three-week highs on Wednesday, supported by gains on Wall Street and growing expectations the US dollar may be peaking after a hefty rally since the US election pulled funds out of emerging markets.

Oil bounced as investors looked ahead to developments at the Organization of the Petroleum Exporting Countries (Opec) meeting in Vienna later in the day.

A 6 per cent rise in the US dollar against a trade-weighted basket of currencies since Republican Donald Trump's upset US election win has hammered emerging markets, as investors pulled money out in favour of US dollar-based assets on bets Mr Trump will boost fiscal spending, growth and inflation.

More than US$16 billion have been sucked out of emerging markets in the two weeks following the Nov 8 vote but stock exchange data in India, Indonesia, Philippines, Taiwan, Thailand and South Korea indicate the outflows may be slowing.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent, its highest since Nov 11. Still, it is set for a second consecutive monthly drop in a sign of the uncertainty around Mr Trump's presidency and the outlook for global growth.

Australian shares were down 0.5 per cent, the Nikkei up 0.1 per cent and South Korea 0.4 per cent higher.

"We are starting to see some pull back on the US reflation trade and stabilisation in US rates," said Fan Cheuk Wan, head of Asia investment strategy at HSBC Private Bank.

"As a result we see good investment opportunities in the Asian markets in the coming months, particularly in markets which have a strong domestic focus and positive reform progress."

Valuations also remain attractive for Asian stocks. On a price-to-book basis, MSCI Asia ex-Japan remains below a 10 year median value of 1.8 times, according to Thomson Reuters data.

In currency markets, the US dollar continued to take a breather against a trade-weighted basket of its peers, down one per cent in the last four days.

The US dollar's recent gains - 7 per cent versus the yen and 3 per cent against the euro - has come on the back of expectations of stepped up fiscal spending, higher inflation and a faster pace of monetary tightening by the Federal Reserve. However, market watchers say further US dollar gains will be hard fought.

"The expectations phase will likely end soon as investors are focused on what the real impact of the Trump administration would be on the market," said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management.

Treasury yields have edged lower after peaking at 2.42 per cent on the ten-year benchmark bond last Friday. The curve, the gap between the ten and two year yield, has steepened by 20 basis points in the last three weeks.

Oil slumped by roughly 4 per cent on Tuesday before bouncing somewhat as most analysts concluded the Opec bloc would cobble together a deal in Vienna to cut production to some extent. The meeting starts at 1000 GMT.

Brent futures were up 0.9 per cent at US$46.80 per barrel while UScrude gained 0.6 per cent to US$45.50 per barrel.

A broad index of commodities was down 2 per cent. Spot gold was up 0.4 per cent at US$1192.74 an ounce.

REUTERS