Emerging-Market Currencies Tumble

        Fears of a default in Greece and an escalating conflict in Ukraine spilled over into emerging markets as investors fled for safer assets, sending currencies in Asia and other developing countries tumbling.
        Indonesia's rupiah sank as much as 1% while South Africa's rand hovered close to its weakest in over a decade and the Malaysian ringgit's slide gathered steam.
        From a political gridlock in Europe over the restructuring of Greece's mountain of debt, to unsuccessful cease-fire talks aimed at ending the conflict in Ukraine and a renewed slide in oil prices overnight, pockets of risk for investors are growing with emerging market assets bearing the brunt.
        "The markets are going to be sensitive for a prolonged period over time, " said Kenneth Akintewe, a portfolio manager at Aberdeen Asset Management in Singapore, which has $504.1 billion under management. "The strong dollar view is beginning to exert itself again, more strongly."
        The U.S. economy is on its way to a recovery even as growth in other parts of the world slows and central banks are stepping in to competitively devalue their currencies. Moreover, the U.S. Federal Reserve is expected to raise interest rates, luring yield-hungry investors away from record low rates in the developing world and less risky assets elsewhere.
        Bond markets are also tumbling, sending yields surging and pointing to investors also pulling out of these markets. Yields move inversely to prices.
        For investors, the weakness in Asia's foreign-exchange markets, which have performed relatively well to their emerging market peers so far this year, is a surprise. As countries in Latin America and emerging Europe have grappled with domestic economic and political challenges, Asia has been resilient with signs of proactive new governments and central banks, and lower currency volatility.
        Local currency bonds in Indonesia, Turkey, Thailand and the Philippines were top performers in 2014. Just weeks ago, yields on Indonesia's bonds fell to multiyear lows as foreign investors poured into local government bond auctions.
        But the currency's sudden plunge Thursday had traders and dealers saying the central bank was intervening and had sold $50 million to $100 million.
        A spokesman from Bank Indonesia said, "Bank Indonesia is always in the market and will intervene if necessary to prevent the rupiah from falling too sharply." He added that the currency's decline was exacerbated due to the dollar's strength and fears that Greece may pull out from the eurozone, expectations of a U.S. interest-rate increase and the Russia-Ukraine conflict.
        He declined to confirm if Bank Indonesia had sold dollars Thursday.
        Emerging markets have grappled with volatile portfolio and capital flows, as global investor sentiment waxes and wanes. Analysts from HSBC say this could lead to more currency weakness "that could spill over to other asset classes, possibly prompting less dovish or even hawkish monetary policy and eventually lower economic growth."
        In Greece, the rescue deal expires at the end of the month and the government could run out of money in early March. With no agreement in sight with its creditors, analysts say Greece could exit the eurozone leading to widespread market turmoil, further dampening prospects of a European recovery. In Ukraine, world leaders are attempting to broker a cease-fire, and as of early Thursday there were only conflicting signs of progress.
        -- I-Made Sentana contributed to this article.
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        (END) Dow Jones Newswires

        February 12, 2015 02:20 ET (07:20 GMT)

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