Volatility in emerging Asian sovereign currencies and bonds shows the region remains exposed to contagion from developments elsewhere, Fitch Ratings says.
As was seen during the “taper tantrum” of 2013, there is some tolerance for market turbulence at current rating levels. Volatility per se would only become a rating driver if it started to have an impact on economic and financial stability, and/or the ability of sovereigns to finance themselves. However, episodes of market volatility since the “taper tantrum” suggest external liquidity and policy credibility have become increasingly important rating drivers for emerging Asian sovereigns as global US dollar funding conditions tighten.
Currencies fell and five-year CDS spreads widened for most emerging Asian sovereigns in the second week of December. The Indonesian rupiah and Malaysian ringgit saw notable moves, the former dropping to its lowest level against the dollar since August 1998 and the latter hitting a five-year low. Both currencies rose on 18 December as the ruble and oil prices strengthened and following perceived dovish comments from the Federal Open Market Committee, underscoring how developments beyond Asia-Pacific can drive investor sentiment. The rupiah was also supported by market intervention from Bank Indonesia. CDS spreads narrowed for most Asian sovereigns on 18-19 December. >> Read More