EM stocks on three-day losing streak

Emerging markets began the week on the back foot after a barely disguised broadside at China from Donald Trump reawakened worries about trade wars and as crisis-hit Venezuela prepared for a meeting with its creditors.

Speaking in Vietnam a day after leaving China, he struck a stark tone on trade saying the current trade imbalance was “not acceptable”.

MSCI’s widely-tracked emerging market stocks index fell for a third straight session for the first time since September and many of the regional currencies also struggled as the dollar made ground.

The standout was South Africa’s rand though as speculation that one of its top treasury officials was set to quit the government sent it to its lowest level in a year and pushed bond markets down too.

Lebanon’s dollar bonds rebounded, meanwhile, after prime minister Saad Al Hariri said he would return to the country soon and could rescind his resignation if Shiite group Hezbollah agreed to stay out of regional conflicts.

There were data and political signals regarding China too.

Figures from Beijing showed new bank loans fell more than expected in October to their lowest in a year, as banks tightened up on mortgage and corporate lending amid a continuing clampdown on more risky lending activities.

Banks extended 663.2 billion yuan (US$99.83bn) in net new yuan loans last month, down from 1.27 trillion yuan in September and below a Reuters forecast 780bn yuan. Chinese stocks ended the day at a near 2-1/2 year high.

Investors also piled into financial stocks, betting Beijing’s latest move on Friday to widen foreign access to its vast financial sector would attract fresh international money, and push up the valuations of Chinese lenders and insurers.

The latest changes include raising the limit on foreign ownership in joint venture firms involved in the futures, securities and funds markets to 51 per cent from the current 49 per cent. Meanwhile, China will drop the foreign ownership cap on banks.

“Given the fast expansion in financial assets over the past few years, we believe that there will be a slew of optimistic headlines carrying positive emphasis on their value,” wrote Raymond Yeung, ANZ’s chief economist of Greater China.