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(Reuters) - Most emerging Asian currencies drifted lower on Wednesday, as a renewed slump in oil prices to seven-month lows put traders on edge, overshadowing a decision by U.S. index provider MSCI to add mainland Chinese stocks to one of its popular benchmarks.
Oil slipped about 2 percent on Tuesday, with U.S. crude at its cheapest level since September, after increased supply from several key producers eclipsed high compliance by OPEC and non-OPEC oil producers with a deal to cut global supply.
The Malaysian ringgit weakened for a fifth-straight day, shedding 0.1 percent, dented by oil's losses. The country is one of the biggest oil and natural gas exporters in Asia.
"Despite the MSCI inclusion of China A shares overnight, sentiment in the region is expected to be fragile," OCBC Bank said in a note.
The Korean won led the declines among emerging Asian currencies, falling as much 0.8 percent to a two-month low.
The South Korean share market could see outflows of up to 4.3 trillion won following MSCI's decision to add China's mainland-listed shares to its global indexes, a senior Korean government official said on Wednesday.
In other Asian currencies, the Philippine peso depreciated as much as 0.4 percent against the dollar, touching its weakest in nearly three months.
Bucking the trend, the Japanese yen was up 0.1 percent at 111.310 against the dollar.
The Chinee yuan was steady against the dollar on Wednesday. Traders appeared to largely ignore the prospect of larger capital inflows after U.S. index provider MSCI said it would add a selection of China's so-called "A" shares to its Emerging Markets Index after having rejected them for three years running.
The move will see around $17 billion to $18 billion of global assets move into Chinese stocks initially, MSCI executives told reporters on Wednesday, adding that over the long-term the full inclusion of the China market could see more than $340 billion of foreign capital flow into the country.
"Similar to yuan’s entry into the IMF’s SDR basket, the short-term impact of MSCI nod on capital inflows will be more symbolic than substantive," OCBC added.
The yuan has risen about 2 percent against the dollar so far this year. A slew of Western traders who bet in the past two years that the yuan would drop because of a weaker Chinese economy, the threat of a debt crisis and capital outflows have abandoned those positions in recent months.
The Taiwanese dollar slid for a second-day on Wednesday, falling as much as 0.2 percent to a two-month low.
Taiwan's May export orders exceeded expectations as the island's factories rushed to meet demand for components, such as for Apple Inc's upcoming iPhone 8, in a promising sign for global technology manufacturers.
Even though momentum may cool in the second half, global demand for Taiwan's tech goods will bolster the economy and likely give the central bank leeway to leave interest rates on hold this week.
Economists said it was unlikely the central bank would follow the U.S. Federal Reserve in raising interest rates this year as that would accelerate upward Taiwan dollar momentum.
Reporting By Shashwat Pradhan in Bengaluru; Editing by Shri Navaratnam