BENGALURU: Asian equities recovered on Monday, heading into a week packed with key central bank policy decisions and domestic economic data, as traders looked to gauge their sentiment with risky emerging market assets in the near term.
MSCI’s gauge of equities in emerging Asia and a broader index of stocks in Asia excluding Japan advanced 1% each, reversing declines from a sharp sell-off last week when investors rotated out of tech stocks.
Regional currencies still traded in a tight range, except for the Malaysian ringgit and the South Korean won which gained modestly, taking the former to its highest since January.
Globally, investors now await Wednesday’s monetary policy meetings of the Bank of Japan (BOJ) and the US Federal Reserve.
While the BOJ’s stance on interest rate and its bond-buying program continues to be uncertain, traders will be scouring statements from the Fed in order to validate their bets of a September rate cut.
“If the FOMC does pivot more dovish, that should set the scene for further dollar declines” and lend support to Asian currencies, said Khoon Goh, Asia research head at ANZ.
A Fed rate cut would widen yield differentials between US and Asian bonds, making emerging markets attractive for investors. CME’s FedWatch tool shows a 100% chance of a rate cut in September.
The Malaysian ringgit advanced 0.5% to 4.630 a dollar, its highest since early January, while the benchmark index added 0.8%. Malaysia’s stocks and currency have outperformed regional peers this year.
Malaysia has been a beneficiary of political stability, favourable policies, attractive valuations in companies, and strong economic growth, making it a favoured spot in the region for investors to park their money, said Sudip Biswas, deputy chief investment officer at Tokio Marine Asset Management.
A stable ringgit and a trend for global companies to diversify manufacturing setups beyond China are also offering further tailwinds, Biswas added.
