One real coins are produced at the Casa da Moeda, Brazil’s national mint, in Rio de Janeiro, Brazil. (Photographer: Dado Galdieri/Bloomberg)

Trade War Worries Push Emerging Currencies to 17-Month Low 

(Bloomberg) -- The selloff in emerging markets deepened on speculation that a trade war between China and the U.S. will escalate. Currencies slumped to their lowest level since April 2017 as Goldman Sachs Group Inc. said its models signaled further declines for some developing nations. Stocks also fell.

Brazil’s real led losses among its major peers amid intense volatility before a new election poll. The Argentine peso slid after some traders said its recent rally went too far, too fast. Turkish data showing the economy expanded less than forecast overshadowed bets on another rate hike, pushing down the lira. The rupee pared its drop as India said it’s considering a plan to tap its citizens overseas after the currency tumbled on gloomy current-account data.

Investors pushed down the value of developing-nation assets as President Donald Trump insisted his trade war with China will spur manufacturing jobs in the U.S., following threats to impose higher tariffs on the nation’s goods. The remarks added to the list of concerns for emerging markets as the era of cheap money ends and governments from India to Argentina struggle to restore confidence in their economies.

The situation doesn’t get any better from a technical perspective. Some patterns suggest that the rout that has taken the MSCI Emerging Markets Index below its 20-year average valuation has further to run before reaching the point where four major turnarounds in the past two decades began.

Trade War Worries Push Emerging Currencies to 17-Month Low 

While this year’s selloff has pushed emerging-market exchange rates into undervalued territory by at least one measure, they are not yet as cheap as in early 2016, Goldman analysts including Mark Ozerov and Kamakshya Trivedi noted. Back then, the developing world was being battered by a slump in global oil prices.

“Of course, valuations are best seen as a medium- to long-term signal for asset market performance, and are rarely a catalyst in and of themselves to spark stronger performance,” they wrote. “Nevertheless a significant cheapening could provide an anchor point for investors who can take the long-term view and a buffer to weather any volatility.”

Highlights:
  • MSCI Emerging Markets Index slid to the lowest since July 2017
  • MSCI Emerging Markets Currency Index extended its monthly slump
  • Risk premium on EM sovereigns +5bps to 372bps: JPMorgan indexes

Upcoming Tuesday:

  • European Parliament debates applying the strongest possible sanctions against Hungary
  • Russian President Vladimir Putin to meet Chinese President Xi Jinping at the Eastern Economic Forum in Vladivostok
  • Mexico industrial production
  • Argentina rate decision
  • South Africa manufacturing
  • Hungary CPI
  • For a list of the day’s biggest earnings releases, click here

Latin America:

  • BRAZIL:
    • Real declined 1 percent to 4.0942 per dollar
    • Brazil Poll Will Test Market Resilience After Attack Spurs Rally
    • Brazil Analysts See Prices Rising Less After Surprise Deflation
  • MEXICO:
    • 10-year local-bond yield rose to the highest on record
    • Mexico Aug. nominal wages rose 5.5% year-on-year
    • AMLO Targets $3.9 Billion in New Oil Investment to Boost Output
  • Click for market news on ARGENTINA and ANDES

EMEA:

  • TURKEY:
    • Lira fell 0.8 percent to 6.4578 per dollar
    • Turkey’s Fast-Paced GDP Growth Shows Signs of Slowdown Ahead
    • Turkey Masses Troops on Syrian Border, Braces for Refugees
  • SOUTH AFRICA
    • 9-year local-bond yield rose to the highest in more than eight years
    • South Africa Recession Adds Risk to Growth, Tax Plans, Nene Says
    • Last Time the Rand Reached This Milestone, It Rallied for Months
  • RUSSIA:
    • 10-year local-bond yield flat at highest in more than two years
    • Russian Economic Growth Revised Higher to 1.9% in Second Quarter
    • Russian Rate-Hike Bets Are the Highest Since 2014 Crisis: Chart
  • Click for market news on POLAND and HUNGARY

Asia:

  • CHINA:
  • INDIA:
    • Rupee Tumbles to New Record as India Scrambles to Halt Decline
    • India Is Said to Ask RBI to Ramp Up Efforts to Soften Rupee Drop
  • Click for more on markets in ASIA

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