Emerging-Market Assets Fall Amid Global Stock Sell-Off

(Bloomberg) -- Emerging-market assets extended declines last week amid a global rout in equities and as the dollar soared to the highest this year. An MSCI index of developing-nation stocks posted its fifth weekly drop, the longest streak since May 2016.

Highlights for the week ended Oct. 26:

• Turkey’s central bank held its main interest rate at 24 percent, but pledged further tightening should last month’s dramatic interest-rate hike fail to curb inflation
• The central bank of Russia kept its rate unchanged at 7.5 percent, but warned further tightening is still possible
• Brazil presidential front-runner Jair Bolsonaro saw his substantial lead over his left-wing rival narrow slightly in a poll for Sunday’s runoff vote; the real was the top-performing emerging-market currency of the week
• The Federal Reserve’s newly installed No. 2 official Richard Clarida backed the U.S. central bank’s plans for some further gradual interest-rate increases and suggested policy makers won’t change course in response to political pressure or recent stock-market jitters
  • President Donald Trump stepped up his attacks on Fed Chairman Jerome Powell, saying he “maybe” regrets appointing him and demurring when asked under what circumstances he would fire the central bank chief
• South Africa’s government debt will peak two years later, and higher, than previously forecast, while the fiscal gap will widen further and state revenue will continue to undershoot, according to estimates presented to lawmakers by Finance Minister Tito Mboweni Wednesday
• The central bank of Indonesia left its benchmark interest rate unchanged, opting to save some of its policy ammunition for possible further market volatility triggered by higher U.S. rates
• The European Central Bank is reconsidering how it controls interest rates, but kept policy unchanged for now; Mario Draghi played down risks to the economy as he set the ECB up for a weightier meeting in December when policy makers will have new forecasts

Asia:

• The Chinese yuan fell to fresh 2018 lows both onshore and offshore; China and Japan capped a restoration of ties with agreements on everything from currency swaps to ocean rescue
  • White House economic adviser Larry Kudlow accused China of doing “nothing” to defuse trade tensions before a likely meeting between Trump and President Xi at the G-20 meeting in Argentina next month
  • China’s “National Team” of state investors has been buying stocks in a targeted fashion, according to people familiar with the matter, as the government tries to prevent a market meltdown
• Stocks in South Korea entered a bear market amid a global rout; Bank of Korea will consider a rate hike in November if there’s no major disorder in the real economy, Governor Lee Ju-yeol said
• The Philippines posted a budget deficit of 96.2 billion pesos ($1.8 billion) in September, nearly three times the shortfall of 36.9 billion pesos a year ago; the peso was the top performer in emerging Asia
• The Malaysian ringgit declined for a fifth week; the nation is considering offering a global bond for the first time in two years after Prime Minister Mahathir Mohamad pared the country’s economic growth target and abandoned a plan to balance its budget by 2020
  • Core inflation rose 0.3 percent year-on-year, versus 0.6 percent estimate
• The Thai baht retreated for the first week in three; trade dispute between the U.S. and China is starting to take a toll on Thailand’s exports, which unexpectedly slid in September for the first time in more than a year; shipments fell 5.2 percent from a year ago, confounding expectations for a 5.6 percent climb in a Bloomberg survey
  • Deputy Prime Minister Somkid Jatusripitak said investors shouldn’t panic over declines in the nation’s stocks

EMEA:

• Trump said he plans to pull out of a major arms control treaty with Russia, claiming the Kremlin breached the accord on intermediate-range nuclear weapons; the ruble slid for the first week in three
  • Russia’s MOEX index fell for a fourth week, the longest losing streak since June; Yandex.Taxi, the country’s largest ride-hailing service part-owned by Uber Technologies Inc., may be worth more than $6 billion ahead of a possible initial public offering of shares next year, according to reports by two investment banks
  • Russia’s President Vladimir Putin and Trump will meet on the sidelines of a World War I commemoration in Paris in November, White House National Security Adviser John Bolton said
• President Recep Tayyip Erdogan called on Saudi Arabia to extradite the suspects Turkish investigators have identified in Jamal Khashoggi’s murder as a sign of goodwill
  • Erdogan reiterated his unorthodox view that lower interest rates result in slower gains in consumer prices
  • Next year’s budget showed biggest cut made to investments; Borsa Istanbul 100 Index fell 6.1%, declining for a second week
• South Africa’s Finance Minister Tito Mboweni said the nation can’t let debt-to-GDP ratio climb above 60 percent; the rand retreated
  • FTSE/JSE Africa All Shares Index slid for a fifth week in the longest slump since August 2010; Naspers was the biggest drag on the benchmark, tumbling about 6 percent as Chinese Internet giant Tencent, in which it owns 31 percent, tumbled in Hong Kong
• Saudi authorities came close to acknowledging the murder of insider-turned-critic Jamal Khashoggi was premeditated as pressure mounted on the kingdom to explain the killing that roiled its ties with the West and spooked investors
• Ukraine returned to the bond market on Thursday in the midst of a global sell-off after the sale was delayed by political wrangling that held up an agreement with the IMF
• Poland’s ruling party won a smaller-than-expected victory in regional elections, drawing a warning from voters unnerved by its unprecedented clash with the E.U.
  • WIG20 Index sank below 2,100 level to lowest since Feb. 2017
• Tunisia paid more to borrow abroad as political bickering stalls efforts to patch up public finances and sentiment toward emerging nations sours

Latin America:

• Brazil’s real and Ibovespa stock gauge both advanced for a fourth week amid optimism right-wing candidate Bolsonaro will win the presidential election
  • Paulo Guedes, the key economic adviser to the front-runner, may announce the government’s economic team soon after the election to reiterate commitment with a market-friendly agenda, Valor newspaper reported
  • READ：Brazil Election Optimism Defies Global Slump on Eve of Vote
• Mexican peso dropped a fourth straight week amid a nationwide referendum on whether to proceed with construction at Mexico City’s new airport
  • President-elect Andres Manuel Lopez Obrador said financial markets should not be worried about the future of airport and there are no fundamentals that explain the peso’s recent performance
  • The peso and stocks would both be hit if AMLO’s administration decides to cancel the airport project, according to Alonso Cervera, Credit Suisse managing director for emerging-market research, who said any cancellation would be "very bad news"
  • Annual inflation slowed more than expected in the first two weeks of October to 4.94 percent, as prices of agricultural goods fell from late September
• Colombia’s central bank kept policy rate on hold at 4.25 percent as the peso weakened to a two-year low amid falling oil prices
• Argentina’s peso retreated, ending a multi-week bullish run, after the country secured additional IMF funding in late September

Upcoming data, events:

--With assistance from Divya Balji.

To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net;Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net;George Lei in New York at glei3@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Alex Nicholson, Philip Sanders

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