JAKARTA, June 18 (Reuters): Indonesian stocks slid nearly 2% and the rupiah weakened on Friday as surging Covid-19 cases sapped risk appetite and squashed hopes that the central bank's accommodative stance would allow equity markets to recover.
South Korea's won fell for the fifth consecutive day in its worst week since March 2020, while other regional currencies were mixed, as investors further digested the US Federal Reserve's hawkish signals this week.
Jakarta's equity index shed as much as 1.9% and was set for its first weekly drop in four after Indonesia on Thursday reported its biggest daily rise in coronavirus cases since late-January.
Yields on Indonesia's 10-year benchmark bonds climbed 8.5 basis points to a two-month high.
"New Covid-19 infections are rising rapidly again... Hospital occupancy rates have surpassed 75% in the capital, Jakarta, raising the prospect that restrictions will need to be tightened," said Gareth Leather, senior Asia economist at Capital Economics.
The rupiah weakened for the fifth straight session and was on track to lose 1% this week as Bank Indonesia's dovish stance and the Fed's indication of raising rates earlier than expected heaped pressure on the currency.
Further complicating matters was news that hundreds of doctors and medical workers in Indonesia had been infected despite being inoculated, while analysts have also highlighted the slow pace of vaccinations.
The US Fed's sudden turn on Wednesday prompted Morgan Stanley analysts to recommend cashing out of long positions in many Asian currencies, including the rupiah and the Malaysian ringgit, as their appeal for carry trade was dented.
"The most important reason why we have been recommending carry trades in Asia was a patient/dovish Fed... Now the conditions have changed materially on the back of a hawkish surprise from the Fed," they said in a note.
Riskier currencies, such as those of emerging markets, thrive on U.S. interest rates remaining low because they benefit from the interest rate differential that increases their appeal for carry trade.
Philippine shares continued to unwind some of the more than 11% gain accumulated in recent weeks and fell half a per cent. - Reuters