asian currencies sold off as investors feared the effects of u.s. trade protectionism and more aggressive inflation-fighting measures from the u.s. federal reserve, sending investors fleeing for the higher returns and perceived safety of u.s. stocks and credit. the u.s. dollar rose sharply friday against the indonesian rupiah, the malaysian ringgit and the south korean won, while the offshore chinese yuan was also volatile. the u.s. dollar rose as much as 2.7% against the indonesian rupiah, its biggest move in six months, prompting intervention by bank indonesia. bank indonesia<u+2019>s senior deputy governor mirza adityaswara told the wall street journal that the central bank was in the market, but declined to provide further details. markets were assessing the impact of potentially higher levels of fiscal stimulus under the administration of president-elect donald trump. he has pledged to aggressively spend and cut taxes, paths that economists perceive to be acutely inflationary. that could prompt a tougher stance from the u.s. federal reserve in response. rising u.s. rates typically spell trouble for emerging markets as traders pull out of risky assets, said khoon goh, head of asia research at anz. <u+201c>what we<u+2019>re seeing is potentially the beginning of an unwinding of the carry trades that have been very popular over the course of this year, which have amounted to huge capital flows into the region,<u+201d> said mr. goh. <u+201c>the market is going through a repricing of emerging markets.<u+201d> this changing investment environment is best seen in the rise in yields for u.s. treasurys, which acts as floor for yields on many u.s. assets. this has pulled money out of emerging markets to chase potentially higher-yielding assets in the u.s. mr. goh added. <u+201c>both near term and also over the longer term, investors may want to position for higher inflation,<u+201d> scott mather, chief investment officer for u.s. core strategies at pacific investment management company, or pimco, wrote in a research note. <u+201c>we expect increased pressure on the u.s. dollar to appreciate, strengthening in particular versus emerging market currencies.<u+201d> many long-only fund managers were sitting on the sidelines and avoiding overreacting, but those that were active were buying aggressively, said lee porter, managing director for asia-pacific at liquidnet, an institutional brokerage. <u+201c>typically, whenever there<u+2019>s volatility, emerging markets get smashed,<u+201d> he said. <u+201c>money gets ripped out of riskier markets and goes into safe havens, then very often finds its way back very quickly.<u+201d> the prospect of protectionist trade policies from the u.s., if not trade wars, has also weighed on the outlook for export-orientated economies in asia-pacific. the south korean won fluctuated between gains and losses after the bank of korea<u+2019>s monetary policy committee unanimously voted to keep rates unchanged at 1.25% for a fifth straight month. donald trump<u+2019>s protectionist rhetoric would be negative for global trade and korean exports, but it<u+2019>s uncertain whether that will translate into policy, said bank of korea governor lee ju-yeol at a news conference after the central bank<u+2019>s decision. the chinese yuan also weakened in onshore markets, edging closer to the levels at which it was briefly pegged against the u.s. dollar around 6.83 during the global financial crisis. the people<u+2019>s bank of china set its daily reference rate for the yuan at 6.8115 against the u.s. dollar, a move 0.3% weaker compared with thursday<u+2019>s rate and a fresh six-year low for the currency. onshore, where the yuan is allowed to move within 2% of the so-called fix, the yuan weakened 0.2% at 6.8112 against the greenback, the weakest levels in eight years. in the offshore market, where the yuan trades freely around the clock, the currency fell to record lows of 6.8491 against the u.s. dollar during american trading hours overnight. it was last flat at 6.8263. the malaysian ringgit briefly hit the weakest levels seen this year, before trading 1.2% weaker at 4.4075 against the u.s. dollar. <u+2014>i-made sentana and kwanwoo jun contributed to this story. write to gregor stuart hunter at gregor.hunter@wsj.com
trump trade worries send investors fleeing asian currencies - wsj
gregor stuart hunter