(June 15): It was arguably about buying time until a peace deal emerged. In the end they didn’t have to wait too long.
Now, having put in place radical measures to defend their financial markets, some of Asia’s economies that are most reliant on energy imports are seeing a turbocharged relief rally.
The promise of an end to the Middle East conflict propelled the Philippine stock gauge to its best rally since March 2020. Indonesian equities extended their rebound, climbing more than 18% from their June 8 trough. India’s Nifty 50 Index also jumped, while the rupee hit a five-week high against the US dollar.
The moves will come as a relief to policy makers across the region after they intervened in currency markets, hiked interest rates or devised strategies to suck more investment back into their beleaguered exchange rates. It’s too early to declare all-clear, but suddenly the horizon looks a little brighter.
“The worst is definitely over, and we will see a rebound in EM assets,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “But the war has taken its toll on domestic economies and we still have expectations for US hikes. That will weigh on the recovery and we won’t be seeing most currencies go back to pre-war levels.”
In the Philippines, the stock benchmark surged over 6% on Monday, the most in six years as traders welcomed the US-Iran peace agreement. Indonesia’s key stock index was up 5%. The Philippine peso surged more than 1.4% with the rupiah up about 1% and the rupee about 0.5%.
India, Indonesia and the Philippines were at the vanguard of this month’s pushback as the three currencies fell to record lows and equity outflows quickened.
See also: Stocks rally, oil declines on Iran peace deal
The Reserve Bank of India outlined steps to make it easier for overseas investors to buy government bonds and stocks, while its counterpart in Indonesia undertook a surprise interest-rate hike and announced plans to intensify interventions to shore up the rupiah. Authorities in the Philippines warned speculators betting against the peso, having previously raised rates to stay ahead of inflation.
And while the pressure on the region’s financial markets wasn’t solely due to the Iran war — policy uncertainty, political intervention and concern over fiscal discipline have all played a role — the relief from higher energy prices will be tangible.
“Asia as an oil-importing region should benefit from the deal to reopen the Strait of Hormuz,” wrote Richard Tang, head of research Hong Kong at Julius Baer, in a note. “Within South Asia, we think this may be a positive catalyst for India, which has been a prolonged underperformer in the region.”
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