Emerging-market shares feel the heat

Tech-stock rout and slow-down in China take their toll

DISAPPOINTING Chinese data and the global tech-stock rout took their toll on emerging markets yesterday, prompting stocks to extend their losses and currencies to soften, with Turkey’s lira chalking up some of the steepest falls.

Emerging IT and tech stocks fell nearly one percent in their fourth day in the red, to their lowest level in nearly three weeks following hefty falls in the sector across developed markets.

The decline weighed on the wider index, with MSCI’s emerging-markets benchmark slipping 0.4 percent. However, the index is on track for a small monthly gain after clocking up losses for the past five months.

Meanwhile, data showing that growth in China’s manufacturing sector slowed more than expected in July – thanks to the worsening trade dispute with Washington, bad weather and weaker domestic demand – added to the sombre mood.

“The latest survey data suggests that a weaker renminbi is helping to dampen the impact of US tariffs, but that domestic headwinds continued to weigh on economic activity in July,” Julian Evans-Pritchard, a senior China economist, wrote in a note to clients.

Solid growth in the world’s second-largest economy has helped to underpin a recent broad-based economic expansion across emerging markets.

The data also added to pressure on China’s currency, which eased slightly against the dollar, putting the yuan on track for a near 3 percent loss in July in its fourth straight month of weakening.

This is the longest such losing streak since 2015.

Currencies elsewhere fared little better despite the dollar treading water. Turkey’s lira was the top under-performer, weakening 0.7 percent against the dollar after the country’s central bank sharply raised its 2018 inflation forecast to 13.4 percent from 8.4 percent.

Markets seemed to find little reassurance from comments by central bank governor Murat Cetinkaya that second-quarter data suggested that Turkey’s economic activity was decelerating and had started rebalancing, and pledging the body’s independence.

The country has been haunted by stubbornly high inflation and a currency in free-fall despite emergency rate hikes. The lira has tumbled nearly 7 percent in July – its sixth straight month in the red.

Meanwhile, Pakistan’s rupee weakened nearly one percent following a 5 percent jump on Monday following media reports that China was providing a $2 billion (R26bn) loan to the cash-strapped country.