Emerging market stocks fall for second day

Emerging market equities were under pressure for the second consecutive session as concerns over high global inflation added to nerves about a Chinese slowdown and tighter financing conditions rippling out from the US.

The FTSE emerging index, a broad barometer of developing nations’ shares, fell about 1 per cent on Thursday in US dollar terms, bringing its decline over the past two days to 1.1 per cent — its steepest slide in about three weeks.

The move came as Turkey’s central bank cut interest rates deeply for the second time in two months despite spiralling inflation, and following a disappointing trading debut for a blockbuster Indian initial public offering.

“The situation in emerging markets is just not very positive right now, given the combination of less than stellar growth and inflationary pressures,” said Salman Baig, portfolio manager at Unigestion.

Hong Kong’s Hang Seng index dropped 1.3 per cent and mainland China’s CSI 300 fell 1 per cent. Meanwhile, India’s Sensex share index dropped 0.6 per cent after shares in Paytm owner One Communications fell more than 20 per cent following its $2.5bn IPO that was met with worries about the fintech group’s business prospects.

In China, investors have been spooked by Beijing’s apparent unwillingness to prop up the nation’s economically significant real estate sector, and liquidity issues at many developers.

Analysts expect this to knock materials exporters such as Brazil and South Africa, whose economies have ridden waves of Chinese stimulus and infrastructure spending, at the same time as surging food and fuel prices have hit consumption in developing nations.

A strong dollar, which has firmed in recent weeks as traders primed for the US Federal Reserve to lift interest rates from a record low next year, has also sparked concerns about EM companies that borrow in the global reserve currency.

The dollar index, which measures the US currency against six others, dipped just below a 16-month high on Thursday after gaining more than 1.6 per cent so far this month.

Turkey’s lira hit TL11 against the dollar on Thursday, its weakest level on record, after the nation’s central bank cut interest rates by 1 percentage point to 15 per cent.

The Central Bank of Turkey, over which President Recep Tayyip Erdogan has increasingly asserted control while promoting an unorthodox view that higher borrowing costs exacerbate inflation, also cut rates by an unexpectedly deep 2 percentage points last month.

In October, the annual rate of consumer price inflation in Turkey soared to 20 per cent.

“Investors are mostly treating Turkey as a sideshow but we can’t be complacent about it,” said Remi Olu-Pitan, multi-asset fund manager at Schroders.

“It is reflecting problems such as high inflation and weak consumer demand that are present in other emerging markets,” she added. “So it could lead to thoughts about [which country] is next.”

On Wall Street, the S&P 500 share index added 0.2 per cent in early dealings, after wavering just below its all-time high for most of the week, as investors balanced strong retail sales with concerns about surging inflation.

In Europe, the Stoxx 600 share index dipped 0.2 per cent lower, after reaching a record high on Wednesday as investors bet on the European Central Bank maintaining negative interest rates and a weaker euro boosted exporters that conduct their business in dollars.

Other market moves:

  • The yield on the benchmark 10-year Treasury note, which moves inversely to the price of the debt security and influences borrowing costs worldwide, was down 0.01 percentage points at 1.594 per cent.

  • Eurozone bonds firmed to reflect expectations of the ECB continuing with its crisis-fighting government debt purchases. Germany’s 10-year Bund yield fell 0.02 percentage points to minus 0.259 per cent. The yield on Italy’s 10-year bond fell 0.03 percentage points to 0.955 per cent.

  • Brent crude, the oil benchmark, rose 0.8 per cent to $80.97 a barrel.

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