China Slowdown Hits Stocks as Trump Sides With Putin: Inside EM

(Bloomberg) -- Emerging-market stocks resumed their selloff Monday after data showed that China’s economy is slowing amid an escalating trade war.

The MSCI EM Index of equities deepened its slide from a January peak to 16 percent, while a currency measure was little changed. Russia’s ruble rose, bucking a drop in oil, as Donald Trump suggested he equally trusted U.S. intelligence officials and President Vladimir Putin as the two leaders stood together in Helsinki. Mexico’s peso led gains in Latin America, extending a four-week rally. In Turkey, banking stocks fell for a fifth straight day after Fitch Ratings knocked the nation’s debt grade further into junk territory.

Emerging Market ETFs Fall for 8th Wk in $10.1 Bln Losing Streak

Withdrawals from emerging-market exchange-traded funds continued for an eighth straight week with outflows exceeding $10 billion, according to data compiled by Bloomberg. Money managers are monitoring Federal Reserve Chairman Jerome Powell’s two-day Congressional testimony and the U.S.-China trade war amid signs that the world’s second-largest economy is cooling.

"If this is sustained, it could continue to weigh on other EM markets," said Frances Hudson, an Edinburgh-based global strategist at Aberdeen Standard Investments, which oversees more than $770 billion. "But the U.S. rate environment, dollar strength and trade war aspects must also be influential."

The International Monetary Fund, which has repeatedly warned that the trade spat between Washington and Beijing will reverberate globally, is set to release its growth forecasts later Monday. China’s economy grew at an expected 6.7 percent in the second quarter, its slowest pace since 2016, while key measures on investment growth and industrial output decelerated in June.

BlackRock Inc. Chief Executive Officer Larry Fink warned that intensifying global trade tensions could spur a 10 to 15 percent selloff in stocks. Earlier Monday, the world’s largest asset manager reported that investors pulled $22.4 billion from its equity products in the second quarter.

ANALYSIS:

• Short Interest in EM Stocks Hits Level That Spurred Past Rallies
• Trade War Just Noise and Asia Stocks Cheap to JPMorgan Asset
• Trade War Imperils World Growth as IMF Sees ‘Complacent’ Markets
• State Street Favors Commodities Over EM Equities on Risk Outlook
• High Hurdles Add to Agony for Actively-Managed EM Debt Funds

UPCOMING TUESDAY:

• Powell delivers the semi-annual Monetary Policy Report to the Senate Banking Committee and answers lawmakers’ questions
• China new home prices
• South Africa consumer confidence
• Argentina national CPI

LATAM:

• BRAZIL:
  • Ibovespa dipped 0.4 percent to 76,279.00
  • Real declined 0.3 percent to 3.86 per dollar
  • 10-year local-bond yield gained nine basis points to 11.50 percent
  • Economic activity suffered its worst plunge on record in May
  • Globo reported that S&P requested a meeting with Treasury Secretary Mansueto Almeida this week
  • BBVA raised its year-end inflation forecast to central bank’s 4.5 percent target
  • Bonds among JPMorgan Asset Management’s top EM debt picks
  • Brazil’s Real Haunted by Economy Present, Election Future
• MEXICO:
  • Mexbol index rose 0.1 percent to 48,455.81
  • Peso gained 0.3 percent to 18.8284 per dollar
  • 10-year local-bond yield declined two basis points to 7.759 percent
  • Government said it will defend actions it took in response to U.S. trade measures against its steel and aluminum exports
  • IMF cut 2019 growth outlook on uncertain outlook around trade tensions, Nafta and president-elect Andres Manuel Lopez Obrador’s policy agenda
  • Bullish bets on peso rose by most since March in week ending July 10: CFTC
  • Rabobank said stay long the peso but hedge against a big depreciation
• ARGENTINA:
  • Merval Index dipped 1.1 percent to 26,214.42
  • Peso declined 0.5 percent to 27.36 per dollar
  • Officials will delay price increases in utility tariffs due to decline in President Mauricio Macri’s approval rating, La Nacion reported
  • Government will postpone indefinitely the construction of three large public works projects to avoid increasing spending as part of deal with the IMF
• Click for market news on ANDES

EMEA:

• TURKEY:
  • Borsa Istanbul 100 Index dipped 0.2 percent to 89,744.01
  • Lira little changed at 4.8371 per dollar
  • Budget gap nearly doubled in June from prior year
  • Trump discussed Syria and other topics with Turkish leader Recep Tayyip Erdogan before his meeting with Putin
  • IMF lowered its estimate for GDP growth this year to 4.2 percent
  • Fitch cut nation’s long-term sovereign debt rating to BB from BB+ on Friday
  • Neuberger Berman said Turkish bonds offer value
  • Corporate loan quality is deteriorating quickly as economy slows “quite sharply,” said Murat Ucer, an economist at GlobalSource Partners in Istanbul
• RUSSIA:
  • MOEX Russia Index dipped 0.5 percent to 2,334.18
  • Ruble gained 0.5 percent to 62.26 per dollar
  • 10-year local-bond yield rose two basis points to 7.54 percent
  • Putin, standing next to Trump, said he wanted him to win 2016 election
  • Central bank said it won’t issue guidance for next rate meeting
  • Ruble could rally to 59 per dollar if Trump-Putin talks are constructive, according to Rabobank
  • Morgan Stanley remains bullish on ruble bonds yet cautious on supply

• SOUTH AFRICA:
  • FTSE/JSE Africa All Share Index declined 1.8 percent to 49,338.95
  • Rand gained 0.4 percent to 13.2224 per dollar, strongest in five weeks
  • 9-year local-bond yield declined three basis points to 8.701 percent
  • Nedbank said nation’s shares are set for a "major" correction
  • Rand buoyed by “fleeting global optimism” though it’s vulnerable to sporadic selloffs, said Mpho Tsebe, strategist at Rand Merchant Bank in Johannesburg
• Click for market news on POLAND and HUNGARY

ASIA:

• CHINA:
  • Shanghai Composite Index dipped 0.6 percent to 2,814.04
  • Offshore yuan gained 0.1 percent to 6.7016 per dollar
  • 10-year local-bond yield declined one basis point to 3.48 percent
  • Data released since Friday confirmed that an ongoing campaign to curtail credit is putting the brakes on the nation’s economy
  • Stock exchanges said they won’t allow mainland investors to buy shares with weighted-voting rights in Hong Kong
  • China and the EU agreed to resist protectionism at Beijing summit
  • Premier Li Keqiang said China doesn’t want a trade war
  • UBS said Chinese stocks may rebound as the trade war is priced in
  • “We have not seen the worst yet,” said Iris Pang, Greater China economist at ING Bank NV in Hong Kong
• INDIA:
  • Sensex Index fell 0.6 percent to 36,323.77
  • Rupee declined 0.1 percent to 68.569 per dollar
  • 10-year local-bond yield gained one basis point to 7.8034 percent
  • Wholesale price inflation in June accelerated to highest in about five years
  • Bond Veteran Who Got Big Call Right Predicts End to India’s Rout
  • Few Stocks Rising From India Selloff Even as Market Hits Record
• Click for more on markets in ASIA

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editor responsible for this story: Rita Nazareth at rnazareth@bloomberg.net

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