Asian Shares: Emerging Markets Hammered by Rise in U.S. Treasury Yields

Asian emerging markets sold off sharply Friday as U.S. Treasury yields rose overnight.

Indonesia's Jakarta Composite Index was off 2.9%, the Philippines PSEi tumbled 2.5% and Malaysia's FTSE Bursa Malaysia KLCI sank 1.1%

In more-developed markets Hong Kong's Hang Seng Index was down 1.5%, South Korea's Kospi was down 0.7%, and Taiwan's Taiex fell 1.8%.

"Global investors are favoring conditions in the U.S. market," said Alex Wijaya, senior sales trader at CMC Markets, pointing to soaring U.S. Treasury yields. "We are seeing a general flowing to the U.S."

The yield on the benchmark 10-year U.S. Treasury note climbed to 2.118% overnight from 2.070% Wednesday. That came on the back of the biggest one-day jump in the 10-year yield in over three years Wednesday.

As offshore investors pulled money out of emerging Asia into U.S. Treasurys, regional currencies were walloped. Indonesia's rupiah was down 1.6% Friday according to Thomson Reuters and the Malaysian ringgit dived 2.7%, according to FactSet.

The rupiah plummet forced the Indonesian central bank Friday to defend the currency, according to Bank Indonesia Senior Deputy Governor Mirza Adityaswara, as foreign investors trimmed their holdings of rupiah assets.

Japan's Nikkei bucked the regional selloff, rising 0.3% even as the yen gained 0.4% against the dollar.

Australia's S&P/ASX 200 also rose 0.2%, lifted by a continuing commodities rally.

The yield on the newest 10-year Japanese government bond briefly rose to -0.025%. Japanese government bond yields were tracking gains in U.S. Treasury yields overnight. JGB yields were driven higher by the prospect of rising inflation given U.S. President-elect Donald Trump's vast plans for spending and tax cuts.

Rising JGB yields lift the profits of Japan financials, which invest heavily in the assets. Nomura Holdings was 4.2% higher and Dai-ichi Life Holdings surged 8.9%.

Japan industrial firms also jumped on expectation they will benefit from Mr. Trump's infrastructure spending. Mitsubishi Heavy Industries was up 3.7% and Kawasaki Heavy Industries gained 4.3%.

Commodities also continued to rise on these expectations. Copper, a core industrial metal, surged 3.6% Thursday, and is up 7% since the U.S. election. Iron ore jumped 4.4% to a two-year high Thursday.

This has lifted Australian miners, with BHP Billiton up 1.9%, Fortescue Metals Group gaining 2.8% and Rio Tinto rising 2.6% on Friday.

The Bank of Korea left its base rate unchanged at 1.25% Friday, reflecting uncertainty caused by Mr. Trump's surprise victory, said Barclays economist Angela Hsieh.

"There are significant near-term uncertainties in the first few weeks after the election, as markets are waiting for President-elect Trump to lay out his policy directions," Ms. Hsieh said. Mr. Trump's protectionist stance should also be a major concern, she added.

"The situation could be further complicated if the Korea-U.S. Free Trade Agreement came to be renegotiated, but we think it would be too early to call," she said.

Biman Mukherji, I-Made Sentana, Stephanie Yang, Kosaku Narioka, Robb Stewart, Kwanwoo Jun and Christopher Whittall contributed to this article.

Write to Willa Plank at [e-mail]

(END) Dow Jones Newswires

November 11, 2016 00:05 ET (05:05 GMT)

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