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China turmoil batters last emerging-market haven
[LONDON] Emerging-market currencies are looking uglier by the day as a week-long slump in China's yuan saps confidence in peers around the world.
India's rupee is trading at an all-time low, South Africa's rand is on the cusp of 14 to the US dollar for the first time since November and the Indonesian rupiah is at its weakest level since 2015 on the eve of a key central bank meeting that now looks likely to result in another hike in rates.
The MSCI index of developing-nation stocks is heading toward a bear market, retreating for a fourth straight day, as the Shanghai Composite Index closed at a one-year low. Average yield spreads of sovereign bonds over US debt are near a two-year year high.
The downdraft leaves emerging markets poised for their worst quarter since 2015, and now the rout that had been largely limited to the most vulnerable economies is starting to ensnare larger markets.
Nowhere is that more apparent than in China, the world's second-biggest economy, where the currency's sudden retreat has triggered speculation authorities are allowing it to weaken to hit back at the US in the deepening trade war.
As Anastasia Amoroso, a strategist at JPMorgan Private Bank in New York, put it in a Bloomberg Television interview, China "was a bit of a safe haven when you looked at the emerging markets space and the fact that it's now wrapped up in this turmoil does not at the moment bode well for the entire asset class."
The MSCI's index of emerging market currencies decline for a fourth day on Thursday to head for its worst month since August 2015 and its fifth-worst this decade
The Shanghai Stock Exchange Composite Index, China's main gauge for equities, fell for a fourth day to head for its sixth week of losses; it's at its lowest level since March 2016
A leaked report from a Chinese government-backed think tank warned of a potential "financial panic" in the economy, a sign that concern among some members of the nation's policy elite is growing concerned. The government in Beijing upped the ante on Thursday, with the Commerce Ministry saying that restrictions on US exports to China - of sensitive technologies that the government wants to protect - will backfire and hamper President Donald Trump's ability to lower a trade deficit.
The yuan depreciated for a sixth day, extending its decline past 6.6 per US dollar, its weakest level since December. Macquarie Group said the slide isn't over, with authorities likely to allow it to reach 6.7 per US dollar.
The yuan's weakness "has fuelled concerns that the US-China trade war could evolve into a currency war," analysts at DBS Bank led by Philip Wee in Singapore wrote in a research report.