Emerging stocks plunge over fears

Reuters, LONDON

Thu, Apr 05, 2018 - Page 11

Emerging equities yesterday turned negative on the year, with Asian bourses suffering hefty falls and currencies under pressure as tit-for-tat tariff actions between Washington and Beijing fuelled fears that a trade war could damage the global economy.

US President Donald Trump’s administration on Tuesday revealed plans to slap a 25 percent tariff on US$50 billion worth of annual imports from China, including technology, transport and medical products.

Beijing was quick to retaliate yesterday, announcing a 25 percent levy on 106 US goods such as soybeans, chemicals, cars, some types of aircraft and corn products.

MSCI’s emerging stocks benchmark fell 1.5 percent to a 50-day low, turning negative on the year.

Asian bourses tumbled, with heavyweight Hong Kong down 2.2 percent to touch multi-week lows, and Malaysia and South Korea not far behind.

China’s main market, the Shanghai Composite Index, closed down 0.15 percent to end the day at 3,131.84 points, erasing some healthy gains earlier in the session.

MSCI’s broadest index of Asia-Pacific shares outside Japan had spent most of its session dithering either side of flat before ending 0.3 percent lower.

However, the rekindled fears of protectionism also sapped risk appetite across wider emerging markets, with bourses in Moscow, Turkey and central Europe also trading in the red.

South African stocks tumbled more than 3 percent, also suffering from a price target cut.

“China is a hub where products from the rest of Asia are assembled and re-exported to the Western world, especially the US,” said Inan Demir, senior emerging economist at Nomura International Ltd. “If Chinese-origin products are subject to tariffs, the likelihood is that other countries will have less room to export to China, because the final destination of those products is the US and also because Chinese growth will slow down.”

Currencies also felt the heat, broadly weakening against the softer US dollar.

The Chinese yuan eased 0.4 percent, suffering its biggest daily fall in two weeks, while the Mexican peso and Russian ruble matching those falls.

The Turkish lira weakened 0.6 percent against the US dollar, crashing once again through the 4-to-the-dollar threshold while tumbling nearly 1 percent against the euro.

Investor worries over Turkey’s monetary policy and high inflation contributed to the weakness.

“Given the market’s concern about over-heating in the Turkish economy, a pronounced reluctance to implement counter-cyclical measures and [to] show a willingness to reduce interest rates further and strengthen credit growth, [this is] adding to market concerns about Turkey’s imbalances,” Demir said.