Emerging market equities were under pressure for the second consecutive session as concerns over elevated global inflation added to nerves about a Chinese slowdown and tighter financing conditions rippling out from the US.
MSCI’s broad EM stock barometer fell about 0.8 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, after policymakers’ attempts to limit borrowing and speculation prompted 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 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 fell to just under TL11 against the dollar, its weakest level on record, earlier on Thursday and was down about 1 per cent to TL10.75 in volatile trading 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.”
In Europe, the Stoxx 600 share index ended the London morning flat, after reaching a record high on Wednesday as investors cheered better than expected corporate results and bet on the European Central Bank maintaining negative interest rates.
Futures contracts tracking Wall Street’s S&P 500 share index were up 0.3 per cent.