Asia: Equities edge higher but emerging market currencies feel the pressure

Asian stocks edged higher on Tuesday, as the volatility that has characterised the region’s markets in recent weeks abated.

The Shanghai Composite Index rose 0.92% but remained 38% lower than its June peak, while Hong Kong’s Hang Seng edged 0.18% higher.

According to Asian Development Bank, the Chinese economy will grow less quickly than previously forecast due to setbacks as investment growth decelerates and weak exports.

Growth in gross domestic product in the People's Republic of China will average 6.8% in 2015 and 6.7% in 2016, compared with rates of expansion of 7.2% for this year and 7.0% for next year predicted back in March.

“China shares were up for the third day on the trot, a running streak unseen for a month thanks to optimism surrounding President Xi’s state visit to the US,” said Mike Van Dulken, analysts at Accendo Markets.

“There is also cautious optimism ahead of China Factory data tomorrow following an improved reading for the Chinese Conference Board Leading Economic index and press talk of slowing growth being overestimated.”

Japanese markets were still closed for a holiday and will reopen on Thursday, while South Korea’s Kospi gained 0.88% and Australia’s S&P/ASX 200 rose 0.74%, as it sought to rebound from its biggest loss in over a week.

Australian equities have been dragged lower by a decline in mining and energy shares, which have suffered from worries of a global slowdown at a time when some of the country’s main commodity exporters have excess supplies.

On the currency front, Asian currencies were under pressure after a number of US Federal Reserve officials hinted interest rates could be raised as early as next month.

Speaking on Monday, Richmond Fed president Jeffrey Lacker and St Louis Fed president James Bullard said the Fed had met many of its objectives.

The Malaysian ringgit fell 0.75% against the dollar, while the Thai baht and the Indonesian rupiah declined 0.47% and 0.58% respectively against the greenback.

“With the Fed expressing that a rate hike may be based on the global and financial developments relating to China growth, if the China flash PMI on Wednesday falls below expectations it may lead to volatility within the USD, exposing the dollar to further weakness,” said FXTM research analyst Lukman Otunuga.