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Asian Markets Share Fall on Trade, Emerging Market Anxiety

The financial crises in Argentina and Turkey have sent shivers through emerging markets.

Asian shares fell for the sixth straight session on Thursday as oil skidded and safe-haven gold gained, with investor confidence shaken by turmoil in emerging markets and jitters over a potentially severe escalation in the US-China trade war.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2 per cent to hit its lowest since mid-August. Japan's Nikkei slipped 0.3 per cent while Australian shares fell 0.9 per cent. Chinese shares were shade firmer with the blue-chip index up 0.2 per cent. Hong Kong's Hang Seng index was barely changed.

Investors were focused on the US-China trade war with a public consultation period on the Trump administration's intent to impose tariffs on an additional $200 billion of Chinese goods ending on Thursday. “An escalation of the US-China trade war may be imminent, the timing is somewhat unclear and this justifies caution even given the (US dollar) pullback,” JPMorgan analysts said. “Conviction and participation will likely remain light until an announcement.”

Trump said on Wednesday that the United States was not yet ready to come to an agreement over trade disputes with China but he said talks would continue.

Measured against a basket of currencies, the dollar index retreated from two-week highs hit earlier this week to be last down 0.2 per cent on the day.

Overnight on Wall Street, the S&P 500 lost 0.3 per cent and the Nasdaq Composite slipped 1.2 per cent. The Dow was a rare bright spot, up 0.1 per cent.

Investors are also watching for developments as the United States and Canada resume talks about revamping the North American Free Trade Agreement. Canada insisted there was room to salvage the pact despite few signs a deal was imminent.

The dollar, considered a safe haven at times of turmoil because of its status as the world's reserve currency, has generally benefited from these trade uncertainties. It has gained 8 per cent since end-March, with currencies in emerging markets taking a hammering.

The financial crises in Argentina and Turkey have sent shivers through emerging markets while in Indonesia the central bank has had to intervene several times in recent weeks to stem the rupiah currency's slide.

An index of emerging market currencies held near 15-month lows after two straight days of heavy declines. The emerging market equity index. has been crunched in the past month or so, falling for five consecutive sessions and down more than 3 per cent this week.

Analysts at Capital Economics believe there was room for further declines in emerging market equities. A range of factors have hit EM stocks recently, namely policy tightening by the US Federal Reserve, crises in Turkey and Argentina, the US-China trade war and broader concerns about China's economy. “We doubt that the main factors which have caused equities across much of the emerging world to weaken together recently will go away just yet,” Capital Economics said in a note.

Argentina's peso had some respite on Wednesday as government officials in Washington sought emergency funding to stem an economic crisis. The cash-strapped nation is asking the International Monetary Fund for early disbursements from a $50 billion standby loan agreed in June, which had failed to clear concerns about the country's ability to pay off its debt.

Elsewhere, sterling gained for a second day as investors positioned for a favourable Brexit outcome. It was last up 0.15 per cent ay $1.2921.

In commodities, oil prices fell as emerging market woes weighed on sentiment. US crude eased 12 cents to $68.6 a barrel while Brent was last down 12 cents at $77.15. Gold was stronger with spot gold up 0.2 per cent at $1,198.5 an ounce.

 

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