EMERGING-market stocks slumped to the edge of bear territory as fear of contagion spread throughout the developing world.
The MSCI Emerging Market Index of equities extended losses from a January peak to 20 per cent, the threshold of a bear market, while currencies were mixed after three days of declines.
Argentina's peso led gains as Treasury Minister Nicolas Dujovne met with the International Monetary Fund, while the Russian rubel tumbled to its weakest in more than two years.
"There is still a lot of uncertainty hanging around emerging markets," said Christopher Shiells, a managing analyst for emerging markets at Informa Global Markets. "We've got the US decision on the next tranches of Chinese imports hit by tariffs, and the general feeling that this sort of underperformance of EM is going to continue for a couple of more months."
While some traders may be steering clear of markets of a key US jobs report on Friday, others see more pain for developing nations, particularly if Donald Trump's administration follows through on a plan for levies on US$200 billion of additional Chinese imports after a consultation period ends on Thursday. China has threatened to retaliate.
"The very tough conditions for emerging markets are likely to continue for a while and economies with current-account deficits will probably remain a major target of selloffs," said Takashi Kudo, the head of financial markets research at Fujitomi in Tokyo.
"Emerging currencies are seeing some stabilisation in the very short term amid a series of supports from respective monetary authorities" including intervention and rate increases.
US companies in August hired fewer workers than economists estimated, a private report showed on Thursday. The ADP figures, published before the official non-farm payrolls report, showed 163,000 new jobs compared with expectations for 200,000. If weaker US employment gains cloud the outlook for rate hikes, demand for riskier assets such as emerging markets may rise.
Here's what some investors and analysts have to say about emerging markets:
George Boubouras
Director at Salter Brothers Asset Management in Melbourne
Contagion is a normal reaction.
This is a dollar-strength issue that began at the beginning of the year or late last year, and good emerging markets have been impacted because they are generally more liquid.
When the sentiment weighs so negatively and the contagion, which will get worse, continues, people then start going back and looking at the fundamentals across reasonable economies that have current-account imbalances.
The valuations are very compelling versus developed markets. Investors can start entering now, but it's just not going to repair itself anytime soon. From Salter's perspective, it's too early, but for a deep-value investor, it's compelling.
Vishnu Varathan
Head of economics and strategy at Mizuho Bank in Singapore
Economies with twin deficits, low foreign-exchange reserves and high inflation are very vulnerable.
But the silver lining is that so far the selloffs outside Turkey and Argentina are quite consistent with those during the global financial crisis and the taper tantrum, and not deeper like during the Asian financial crisis.
In Asia, the twin deficit issue is acute for Indonesia and especially India amid persistently high oil prices. Indian policymakers aren't leaning against depreciation in the currency at this point
Jameel Ahmad
Global head of currency strategy and market research at FXTM
Investors are really attacking currencies from current-account deficit countries.
"What I'm looking for is a change in tone in the Federal Reserve as we end 2018. That potentially they will pause monetary policy normalisation headed into next year. This will provide a significant opportunity for a rebound in FX in emerging markets." BLOOMBERG
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