Asian stocks snapped a four-day winning streak on Wednesday and safe assets like gold consolidated overnight gains after President Barack Obama clinched the backing of two key figures in Congress in his drive for limited U.S. strikes on Syria.
The MSCI Asia Pacific Index dropped 0.4 percent as of 11:42 a.m. in Tokyo, falling for the first time in five days. Japan’s Topix Index (TPX) lost 0.4 percent while the Philippine stock indexsank 1.7 percent, the most in Asia. Standard & Poor’s 500 Index (SPX) futures were little changed. South Korea’s won declined from a four-month high versus the dollar, while Malaysia’s ringgit depreciated 0.4 percent. The Aussie strengthened to a two-week high. Soybeans slid 1.1 percent.
The U.S. dollar stood tall even as risk appetite waned, on course for its best five day performance in two months against a basket of currencies as a stronger-than-expected slate of U.S. data emboldened greenback bulls.
Although emerging markets in Asia appear to have stabilized in recent days, market watchers believe the sell-off is far from over, with one analyst warning that the rout may be just the beginning of a multi-year bear market in the region.
According to Paul Krake, founder of Hong Kong investment firm View from the Peak: Macro Strategies, the winding down of the Federal Reserve's monetary stimulus, widely expected to begin this month, would likely be accompanied by a dovish statement saying monetary policy will be kept easy for a long period.
"That leaves us with developed market central banks that are extremely dovish – Japan, the Fed, the ECB," which will continue to encourage investors to stay exposed to these markets at the expense of emerging markets,” he said.
The brunt of the selloff has been felt by emerging market countries in Asia such as India and Indonesia which have been singled out by investors for punishment due to their reliance on capital inflows to resolve widening deficits.
In stark contrast to these two beleaguered economies, the Korean won came in above a 200-day moving average, a key technical level, against the U.S. dollar and rose above 1100 for the first time since early May.
Krake doesn't expect emerging markets to find valuation support any time soon. "Except for Korea, you haven't had earnings estimates come down anywhere near enough. You're going to have negative profit growth in India this year; consensus is still 10 to 15 percent. It's just not going to happen."
Dollars Shine
In the currency market, the dollar was a big winner in the wake of the upbeat U.S. data, rising to a six-week peak against a basket of major currencies.
That dollar strength saw the euro slide to a six-week low of $1.3138, although it has since managed to edge up to $1.3170. Both the dollar and euro clung to modest gains on the yen, but could quickly lose them if geopolitical risk flared up.
Oil and gold rose on the news with U.S. crude at $108.29 a barrel, having jumped nearly 1 percent on Tuesday. Spot gold traded at $1,412.95 an ounce following a 1.3 percent rally overnight as investors sought safety.