Emerging stocks retreated for the second day in a row on Wednesday as cooling Chinese inflation and central banks’ keenness for weaker currencies fed fears of a sharp global growth slowdown.
Data showed China’s consumer inflation rising less than expected, while factory gate “producer’’ prices slipped for the 43rd straight month. Chinese 10-year bond yields slipped at auction to 2008 lows on expectations the economy is headed for deflation and more policy stimulus.
Those expectations helped mainland shares close flat, though Hong Kong-listed H-shares pulled back 0.7 per cent, taking MSCI’s emerging equity index 0.5 per cent lower to one-week lows.
The index rebounded 12 per cent in the first week of October, but signs of faltering world growth have tempered those gains.
Many central banks are concerned about the impact on their economies and Singapore eased policy for the second time this year. But its dollar rose to a one-month high against the greenback as the move was less bold than expected.
Some analysts expect Serbia to cut rates by 25-50 basis points later in the day.
“The inflation data from China and Singapore’s stance will only reinforce the trend we are seeing. I think we have another leg of weakness in emerging markets before we can expect a sustained recovery,’’ said Per Hammarlund, head of emerging markets strategy at SEB in Stockholm.
Confidence in China’s outlook was key to more lasting emerging market gains, Hammarlund said, adding: “I was looking for a Fed rate hike to signal growth was returning but that’s not enough any more, the Fed is looking to China.’’
The lira firmed 0.5 per cent and stocks rose after data showed Turkey’s current account deficit narrowed to $163 billion in August, 90 per cent below year-ago levels.
The South African rand jumped almost 1 per cent on expectations that the potential sale of brewer SABMiller, which has a secondary listing in Johannesburg, would inject over $500 million into the economy.
Crude prices meanwhile extended losses, with Brent slipping under $49 a barrel. That pushed the rouble 0.2 per cent lower against the dollar adding to Tuesday’s 2 per cent loss. Russian stocks fell more than 1 per cent.
RBS strategist Tatiana Orlova said Russian assets would move in lock-step with oil but if crude stabilises around $50 a barrel, she predicts 500 basis points of rate cuts in the coming year, including one in October.
“(Central bank governor) Nabiullina’s comments (on Tuesday) suggest the central bank is prepared to ease aggressively if inflation is in line with projections. But if oil falls further, the easing will be put on hold,’’ Orlova added.
Ukrainian bonds were steady around 80 cents in the dollar before a bondholder vote on debt restructuring. The vote should go smoothly after terms for holders of 2015 debt were sweetened.
Investors were also nervous about Brazil where worsening politics pushed the real 3 per cent lower on Tuesday and fuelled a 4 per cent equity loss, the biggest daily fall since December.