Emerging market stocks shiver
LONDON: Weak Chinese data, rising trade tensions and a more hawkish US Federal Reserve sent shivers through emerging market stocks this week, but currencies bounced as the dollar weakened before a European Central Bank meeting.
The Fed raised interest rates yesterday, as expected, but struck a more hawkish tone by forecasting slightly faster tightening, with the spectre of higher borrowing costs weighing on developed and emerging market stocks.
Figures out of China showing the world’s second-largest economy was finally starting to cool under the weight of the government’s multiyear crackdown on riskier lending, which raised borrowing costs for companies and consumers. That did little to calm investors’ nerves
Beijing’s central bank also parted from its usual course and left borrowing costs unchanged after the Fed hike and news that US President Donald Trump would meet top trade advisers to decide whether to activate threatened tariffs on billions of dollars in Chinese goods.
“That backdrop is not exactly what one would call friendly for emerging markets: a Fed set to keep tightening policy, and a realeconomy trade spat,” Rabobank analysts said in a note to clients.
The dollar reversing gains before the ECB meeting helped emerging currencies strengthen against it after several days of weakness.
South Africa’s rand rose more than 1%, while Mexico’s peso, a weather wane for trade sentiment, strengthened 0.4%.
Turkey’s lira, seen as more vulnerable to US interest rate rises due to its large external financing needs, snapped a three-day losing streak to jump 1%.
But the currency has still tumbled nearly 18% since the start of the year, with investors concerned over President Tayyip Erdogan tightening his grip on monetary policy in the wake of the June 24 election.
A raft of central banks in economies that have linked their currencies to the dollar such as Hong Kong, Saudi Arabia and the United Arab Emirates raised their interest rates to follow the Fed. – Reuters
Earlier in the week, traders put the lira, rand and real on notice, Bloomberg reported.
With the MSCI emerging market currency index on course for a third successive monthly decline for the first time since January 2016, the rand was options traders’ least loved of the 24 emerging market currencies, followed closely by the lira.