MSCI’s benchmark emerging equity index was down 0.3%, reflecting growing fears the tit-for-tat tariffs will hit exporters in other countries as the World Trade Organization warned the effects were already starting to show.
China has made clear that tariffs on US goods will take effect immediately after the US duties kick in.
“It’s quite a bearish global market environment,” said Koon Chow, an emerging markets strategist at UBP. “There are concerns about global growth given the increase in trade tensions … manifesting in punishment of currencies or countries that are open and do a lot of trade with the US and China.”
Asian markets took much damage with Hong Kong shares down 0.7% at October lows, while Chinese mainland shares slid 0.9% and the yuan retreated a touch. The yuan rose sharply against the dollar earlier in the week after China’s central bank moved to calm the market.
Taiwanese shares fell 1% and South Korea stocks slipped 0.4% to 14-month lows.
Philippine stocks shed 1.5% as inflation there quickened to its highest in more than five years, opening the door for a third rate hike this year.
Parts of Europe opened stronger, however, with Turkish stocks up 0.8% and Russia shares up 0.5%.
With the dollar index retreating 0.3%, some of the emerging currencies that have sold off in recent days stabilised or rose.
BNP Paribas Asset Management said it was continuing to look for opportunities to add long EM FX exposure: “Our view on EM remains constructive. We believe that market participants have now discounted most of the bad news and that there are now more elements for positive rebound,” it said in a note.
The Turkish lira stabilised after coming under sustained selling earlier in the week when consumer price inflation jumped to a 14-year high. This increased expectations the central bank will have to raise rates again.
Turkey’s prime minister said bringing down inflation and interest rates was a top priority.
UBP’s Chow put the chances of another Turkish rate hike at 50/50. “Now we are post-election, keeping the exchange rate stable is less important from a political standpoint and yields are already high enough to slow the economy down – adding another 100 basis points won’t make much difference,” he said.
In Europe, Hungary’s forint firmed 0.4% against the euro to a two-week high, rebounding from a record low hit in recent days.
Sentiment has improved on expectations that the central bank in Budapest, which moved away from its ultra-loose stance in its rhetoric last month, is working on plans to tackle inflation.
The zloty traded flat. Political tensions between Poland and the European Union have resurfaced after legislation came into force requiring a third of Supreme Court judges in Poland to retire.