BENGALURU (May 26): A relief rally in Asian emerging markets faded on Tuesday as US strikes against Iran sent oil prices higher and triggered renewed uncertainty over a peace deal.
Stocks in emerging Asia retreated a day after touching a one-week high, as the US struck Iran even as the nation’s top negotiator and foreign minister were in Doha for talks.
US Secretary of State Marco Rubio said on Tuesday negotiating a deal with Iran could “take a few days,” quashing hopes of an imminent end to the conflict.
An MSCI gauge of equities in Asean countries slipped 0.3%. Singapore’s stocks, which account for almost half of the index, fell as much as 0.5%. Shares in the Philippines, Malaysia, and Indonesia also lost between 0.5% and 1%.
“Today’s mixed trading reflects a more sober reassessment by markets,” said Fakhrul Fulvian, chief economist at Trimegah Securities, a Jakarta-based brokerage.
“Investors are also starting to differentiate between temporary geopolitical relief and the region’s underlying macro vulnerabilities.”
Prolonged disruption to oil supplies could upend progress on taming inflation, forcing central banks to keep interest rates higher for longer, or even tighten further, said Ecaterina Bigos, chief investment officer, Asia ex-Japan, at BNP Paribas.
Oil import-dependent Asian economies have been burdened by the sharp rise in energy prices over the past two months, pressuring their current accounts, driving significant outflows and straining currencies.
Indonesia, the Philippines and India have stepped up measures to stabilise their exchange rates, while attention now turns to South Korea’s central bank, which is expected to hold its benchmark interest rate at 2.50% on May 28.
A Reuters poll shows most analysts now expect Bank of Korea to hike rates at least once by the end of 2026, as the Iran conflict adds to inflationary pressures.
South Korea’s benchmark Kospi hit a new all-time high after markets reopened following a long weekend. Chipmakers Samsung Electronics and SK Hynix soared 3.3% and 7.5%, respectively, to record levels.
That drove the broader MSCI gauge of EM Asia equities up 1.4% to a record high, even as world stocks remained under pressure.
In Sri Lanka, the central bank surprised markets with an outsized 100 basis-point rate hike, citing rising inflation and pressure on the Sri Lankan rupee, driven by higher oil prices in a country heavily reliant on fuel imports.
In Southeast Asia, the Indonesian rupiah weakened to a fresh record low at 17,790 against the dollar on lingering concerns over capital outflows, governance issues and export controls. Stocks in Jakarta declined more than 0.6%.
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