Asian currencies weakened against the U.S. dollar on Monday as renewed tension in the Middle East sent oil prices surging and revived fears of inflation, while South Korean shares fell 8% to trigger a circuit breaker, led lower by SK Hynix.
The U.S. dollar index crept higher against a basket of major currencies on the day as renewed conflict in the Middle East sent oil prices 4% higher, fanning inflation fears as well as the prospect of rate hikes by central banks globally.
Currencies in emerging Asia were on the back foot: the Indonesian rupiah slipped to as much as 18,140 per U.S. dollar, its weakest point in more than a month, while the South Korean won fell to 1,507.9 a dollar.
South Korea's benchmark equity gauge KOSPI tumbled 7.96% to a 10-week low, dragged lower by a sharp 13% plunge in SK Hynix, the world's leading AI memory chipmaker, as investors booked profits after a bumper U.S. debut on Friday.
Concerns around the durability of record earnings driven by demand for high-bandwidth memory chips and more disciplined spending by AI hyperscalers have dented chipmaking stocks recently. Highly leveraged single-stock ETFs are also driving volatility.
The KOSPI is now down around 25% since its record close on June 22, although it remains one of the top performing equity markets in the world with a 63% gain so far this year.
In Malaysia, the ringgit weakened to 4.0780 a dollar, while stocks jumped to a three-week high. A crushing defeat of Prime Minister Anwar Ibrahim's coalition to a key partner in a Johor state poll on Saturday has raised questions over the strength of the blocs' alliance at the federal level amid talk of an early general election.
"Any renewed uncertainty over federal coalition cohesion and the continuity of the government's economic agenda could put part of this policy-stability premium at risk, even if Malaysia's macro fundamentals remain supportive," said Goldman Sachs in a note.
Goldman analysts added that the central bank's measures to encourage foreign exchange inflows in June should help contain excessive volatility and depreciation pressure on the ringgit, even if the domestic political risk premium persists.
Elsewhere in emerging Asia, stocks in the Philippines edged higher, while those in Indonesia gained 0.5%. Stocks in Taiwan inched lower.
Singapore's benchmark index declined as much as 0.7%, snapping seven consecutive sessions of record highs.
For the week, investors are on the watch for Singapore's advance second-quarter economic growth data, U.S. inflation print, Bank of Korea's interest rate decision, and Malaysia's inflation print and advance economic output data.
HIGHLIGHTS:
** BOJ may raise growth forecast, maintain vigilance to inflation risk, sources say
** Thai inflation likely below 2.8% this year, policy to remain accommodative, central bank chief says - Reuters
