Emerging markets fall as investors await Fed decision

On Wednesday, most Asian stocks faced a retreat, with Thai stocks hitting an over three-year low, and currencies remaining on the defensive as the market eagerly anticipated the US Federal Reserve's final policy decision of the year and its potential monetary easing timeline.

In Thailand, stocks slid by 0.8 per cent, reaching their lowest level since November 18, 2020. Equities in Indonesia also experienced a decline of 0.7 per cent, while South Korean stocks retreated by 0.6 per cent. The Philippine Peso and the Malaysian ringgit both declined by 0.5 per cent, hitting their lowest levels in nearly a month.

The central focus in the markets was on the Federal Reserve, set to announce its rate decision at the conclusion of its two-day policy meeting later on Wednesday. While market expectations lean towards policymakers keeping rates on hold, investors are keen to understand the Fed's perspective on the timing of potential rate cuts, especially considering the unexpected rise in US consumer prices in November.

"The sticky US CPI data slightly dampened rate cut expectations. Against this backdrop, investors are tempted to trim their position for the Fed's dovish shift tonight, and risk assets in Asia dipped," noted Ken Cheung, chief Asia FX strategist at Mizuho Bank.

In addition to the Fed, investors in emerging market assets are closely monitoring developments in Argentina. The new Economy Minister, Luis Caputo, stated that the government plans to weaken the Peso over 50 per cent against the Dollar, cut energy subsidies, and cancel tenders of public works to address the country's severe crisis.

Meanwhile, in India, retail inflation in November rose at its fastest pace in three months, leading to speculation that the central bank will not ease interest rates in the near future. This contrasts with other Asian countries like Thailand, the Philippines, and South Korea, where data last week indicated a cooling of inflation in November.

"The inflation outlook in Asia may not allow the Asian central banks to enter the rate cut cycle very soon, and the narrowing yield gap between the US and EM Asia will favor capital inflow to the Asian region," remarked Ken Cheung.

Stocks in Manila fell by 0.4 per cent, and investors are also eyeing the Philippine central bank's policy decision on Thursday. Expectations suggest that the Bangko Sentral ng Pilipinas (BSP) will likely leave interest rates unchanged.