Asian markets resumed their downward march Wednesday on growing concerns about emerging market economies adds to the uncertainty stoked by Donald Trump’s long-running trade rows with China and Canada.
After Turkey and Argentina’s recent headline-making problems, South Africa became the latest country to spark panic Tuesday with data showing a shock plunge into recession for the one-time economic starlet.
The news sent the country’s rand currency plunging in a similar way to the Argentine peso and Turkish lira in recent weeks, with observers increasingly worried the problems could spread to other emerging market (EM) countries and possibly spill over into major economies.
“South Africa is back in recession and that was not expected,” said Greg McKenna, chief market strategist at AxiTrader.
“The big question is whether this is a … tipping point for EM markets and if the idiosyncratic issues are now adding up to something more structurally pernicious for EM markets. My guess? Yes, it is.”
The brewing crisis has seen currencies in a number of emerging markets — mostly with deep current account deficits — take a hammering, with India’s rupee at a record low and the Indonesian rupiah at levels last seen during the 1998 Asian financial crisis.
Adding to selling pressure on the EM currencies is the US economy’s continuing strength, which is forcing the Federal Reserve to lift interest rates, in turn leading investors to seek better, safer returns in the US.
Trade in focus
Data showing an index of manufacturing activity hitting a 14-year high bolstered expectations the Fed will continue to lift borrowing costs. Crucial US jobs data is due out on Friday.
Equity investors remain on edge as a deadline approaches this week for a public consultation on Trump’s proposal to impose tariffs on $200 billion of Chinese imports, on top of the $50 billion already being hit.
While the two sides have held low-level talks there are fears the measures will be implemented, which would spark a retaliation from Beijing, and push the world’s top two economies closer to an all-out trade war.
Tokyo ended the morning session 0.3 percent lower, Hong Kong shed 0.9 percent and Shanghai fell 0.3 percent, while Singapore gave up 0.2 percent and Seoul dipped 0.1 percent.
Sydney fell 0.7 percent despite news that the Australian economy expanded far more than expected in the second quarter thanks to a pick-up in exports and consumer spending. The local dollar rose 0.5 percent.
Eyes are also on the resumption of talks Wednesday between the US and Canada aimed at reviewing the North American Free Trade Agreement. Optimism sparked by Mexico’s deal last week with Washington was soon tempered by failure to close between the US and Canada, with Trump threatening to leave Ottawa out of the pact altogether.
Canadian Prime Minister Justin Trudeau stressed Tuesday that no NAFTA is better than a bad deal for his country.
Key figures (around 0230 GMT)
Tokyo – Nikkei 225: DOWN 0.3 percent at 22,631.17 (break)
Hong Kong – Hang Seng: DOWN 0.9 percent at 27,711.98
Shanghai – Composite: DOWN 0.3 percent at 2,741.16
Euro/dollar: UP at $1.1607 from $1.1600 at 2100 GMT
Pound/dollar: DOWN at $1.2868 from $1.2900
Dollar/yen: UP at 111.55 yen from 111.45 yen
Oil – West Texas Intermediate: DOWN 39 cents at $69.48 per barrel
Oil – Brent Crude: DOWN 18 cents at $77.99 per barrel
New York – Dow: DOWN 0.1 percent at 25,952.48 (close)
London – FTSE 100: DOWN 0.6 percent at 7,457.86 (close)
/vvp