EM stocks extend post-Trump slide
Emerging market stocks fell for the ninth time in 11 days yesterday, taking their drop since Donald Trump’s US election win to 7.5 percent and leaving investors facing an uncertain start to 2017. Festive cheer was in short supply with some of the same worries that brought a torrid start to 2016 for EM assets starting to resurface. Chinese stocks , which are heading for a 17 percent walloping for the year, most of which came in January, fell to a two-month low, while the yuan limped back towards an 8-1/2 year low.
As was the case at the beginning of the year, EM currencies are being forced to bow to the dollar as the prospect of further US rate hikes and a fiscal spending drive under Donald Trump loom. South Africa’s rand, Turkey’s lira and Mexico’s peso took advantage of the quiet pre-Christmas market to nudge higher. So did Poland’s zloty and Hungary’s forint after they had both hit more than 14-year lows versus the greenback on Thursday.
But Asia continued to struggle. The South Korean won hit a fresh 9-month low at 1,204.5 per dollar, the Taiwan dollar touched its lowest in nearly five months and Singapore’s central bank was suspected to have intervened to prop up its dollar after it fell to a more than six-year low. “We have almost come full circle on the dollar attitude,” said UBP’s EM macro and FX strategist Koon Chow. “Similar to a year ago, we are expecting more US rate increases and also similar to a year ago we are seeing renminbi (yuan) depreciation pressure due to outflows and arguably that could intensify next year.”
One of the reasons could be lower demand for yuan to buy property as Beijing bids to cool the overheating parts of the country’s housing market. Another is uncertainty about how China’s relations with the United States will fare under Donald Trump. Chinese state media yesterday expressed alarm and warned of a “showdown” after the president-elect named Peter Navarro, an economist who has urged a hard line against Beijing, to head a new White House National Trade Council. “The new administration should bear in mind that with economic and trade ties between the world’s two largest economies now the closest they have ever been, any move to damage the win-win relationship will only result in a loss for both sides,” the official English-language China Daily said in an editorial. — Reuters