Emerging markets - Indonesia benchmark bonds on a high; Asian markets slide as Ukraine crisis raises inflation fears in the region

A view of the Indonesia Stock Exchange building in Jakarta, Indonesia. - Reuters

JAKARTA, March 7 (Reuters): Emerging market currencies and equities tumbled on Monday, with Malaysian and Thailand indexes diving more than 2%, as inflation concerns grew amid a persisting Ukraine crisis, while China's yuan stood out and hit a record high.

Kuala Lumpur shares slid 2.1% in their worst session in four months and Thai equities hit a five-week low. Japan and Taiwan stocks sank 3% each, while the Russian rouble hit a record low.

The military crisis in Ukraine, which Russia calls a "special operation", and its potential fallout continued to dominate headlines, sending prices of oil and safe havens such as gold soaring.

Markets are bracing for the fallout from rising commodity prices, particularly higher inflation which could pressure the US Federal Reserve and other central banks to quickly tighten policy, just as the world emerges from a pandemic-led slump.

"Considering that the inflation prints are rising across the region, the risks are skewed towards Asian central banks focusing on greater inflation risks and turning more hawkish, and the likelihood of them focusing on negative growth drags and turning more dovish is low," DBS Bank economists said in a note.

However, Asia had "sufficient depth" to take on elevated commodity prices, despite the region's status as a net energy importer of energy, they added.

Yields on Indonesia's benchmark bonds, which have among the highest returns in the region, jumped 82 basis points to their highest in almost a year. Long-tenor bonds in Singapore, seen as a safe-haven bet, saw yields slip 38 basis points to 1.810%.

The yuan soared to an all-time high against its regional peers as investors expect more stimulus to underpin the economy after Beijing disclosed major economic targets for this year.

Higher exposure to commodities helped limit losses in Indonesia, a net exporter of energy. The rupiah lost 0.2% while stocks gave up 0.8%.

On the other hand, the Indian rupee hit a record low, while yields on the benchmark 10-year bond climbed 72 basis points to 6.885%.

India stands at a disadvantage from the surge in crude prices, which threaten to push up imported inflation and widen the country's trade and current account deficits.

Analysts at Emkay Global Financial Services warned that a boycott of Russian oil imports, currently being mulled by the West, would exacerbate pressure on already tight supply side dynamics.

In South Korea, the won eased more than 1%, even as its foreign exchange authority sold U.S. dollars to limit a decline in the currency after a warning that it was monitoring speculative movement in the offshore market. - Reuters