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Emerging Asia feels sell-off pain as investors seek safety

Market stabilization measures quell some fears as governments step up

Women wearing face masks walk past headquarters of the stock exchange of Thailand in Bangkok. The coronavirus has hit the region's economies hard (Photo by Akira Kodaka)

JAKARTA -- For investors in emerging Asia, Friday quickly brought what has become an ominously familiar feature of recent trading: automatic "circuit breakers" kicking in to halt dealing across a swath of stock markets as shares took another lurch downward.

The string of market suspensions highlighted that the smaller, more vulnerable economies of Southeast Asia have been some of the worst affected by the coronavirus-related turmoil, with currencies also taking a hit, as investors fret over the impact of the outbreak.

Stock trading was temporarily halted for the second day running in the Philippines, Indonesia and Thailand, while India also suspended trading on Friday. Markets in the four countries plunged by between 5% and 13% in early trading.

For the Philippines, "the two consecutive days of circuit breaker is unprecedented and it shows the level of panic that is going on in the market right now," said Matthew Cabangon, president of AAA Equities, a brokerage in Manila.

"I don't think we have seen the worst yet," Cabangon said. "The market is being driven by coronavirus fears and I expect things to get worse before they get better."

Yet what has already happened has been alarming enough to emerging Asia investors. Thailand's SET index plunged at one stage by as much as 28.9% compared to last Friday, the worst among the four markets. The Philippines' PSE index suffered a 24.7% drop, India's NSE Nifty was down 22.1% and Indonesia's Jakarta Composite Index at one stage fell 15.6%, with investors shunning riskier emerging market assets in favor of haven assets such as U.S. government bonds.

The four markets are now trading at multiyear lows; the Jakarta index hit its lowest point since February 2016, the PSE since June 2012, the SET since November 2011 and the NSE Nifty since January 2017.

The region's currencies have also been hit. The Indonesian rupiah fell as much as 2.1% against the dollar on Friday, or 4.1% compared to last week. The Thai baht declined 1.2% against the greenback, or 2% from last week.

"With the sell-off, some risks become accentuated -- for example, the amount of foreign capital reliance to fund Indonesian bonds, or the amount of foreign capital in [the] Southeast Asian market -- that didn't bother anyone earlier," said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. "But now that markets are falling, there's a sense that capital may be fleeing back to the U.S. and other places in developed markets. All these exposures suddenly look a lot more vulnerable, and that in itself creates further fears."

To boost investor sentiment and support the economy, governments across the region have introduced measures to support their economies. In Indonesia, 12 state-owned enterprises are looking to buy back their shares, while on Friday, the government unveiled its second stimulus package, worth nearly 1% of its GDP, or 125 trillion rupiah ($8.36 billion). It included a relaxation of income tax for individuals and corporations as well as a relaxation of loan payments for micro, small and medium enterprises.

In the Philippines, finance secretary Carlos Dominguez on Friday instructed state-run pension funds to double daily average stock purchases "to take advantage of the low stock prices as well as to support the stock market," according to local media reports.

In neighboring Thailand, Deputy Prime Minister Somkid Jatusripitak ordered an urgent meeting between the Securities and Exchange Commission and the Stock Exchange of Thailand to seek measures to support the bourse after trading was halted for the second consecutive day. Somkid said the country may need to set up a fund to help boost SET trading.

Such measures, or talk of action, seemed to stem some fears; all four markets moved back into positive territory in later trading.

Attention may now turn to what capacity regional central banks have to weigh in. Central banks in both Philippines and Indonesia will hold monetary policy meetings next week. Both slashed their benchmark rates in February as they anticipated the hit to the economy from the coronavirus outbreak, but the recent market declines may make it harder for them to do so again.

"In the situation where there's huge capital flight and as a consequence of currency instability or risks of currency instability, then every incremental [rate] cut becomes riskier," said Varathan of Mizuho. "Central banks have to review very carefully whether it's worth the risk and the cost of a cut to boost the economy."

Additional reporting by Cliff Venzon in Manila, Kentaro Iwamoto in Singapore and Apornrath Phoonphongphiphat in Bangkok

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