Emerging Asian markets rose after oil prices fell sharply on reports of a tentative US-Iran peace agreement. Many economies in the region rely heavily on imported energy, so cheaper oil can ease inflation pressure, support currencies and improve the case for lower interest rates.
The MSCI Emerging Markets Asia index climbed 3%. South Korea and the Philippines gained more than 5%, while Taiwan rose around 2.5%. Currency markets also reacted positively, with Indonesia’s rupiah rising nearly 1% to 17,690 per US dollar.
The immediate driver was oil. Brent crude dropped to its lowest level since March as investors judged that a US-Iran deal could reduce supply risks. Lower oil prices tend to benefit energy-importing Asian economies because they reduce import bills and help contain consumer price pressures.
Central banks in Taiwan, Indonesia and the Philippines are due to meet on 19 June. If oil prices stay lower, policymakers may have more room to consider easier monetary policy. That could be supportive for local bonds, equities and currencies.
Indonesia is a key market to watch. The rupiah has strengthened, but the bigger signal may come from the country’s 10-year bond yield, which stood at 7.166%. A fall in yields would suggest investors are becoming more confident that inflation pressure is easing and that rate cuts may become more likely.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
