LONDON: Emerging stocks traded just off one-month highs on Wednesday, as lacklustre factory data in Asia underscored sluggish economic growth across the developing world and the Chinese yuan approached a five-year low.
MSCI's benchmark emerging equity index was flat, after disappointing manufacturing and export data from emerging growth engines China, South Korea and Taiwan.
Chinese manufacturing activity (PMI) remained weak in May amid soft demand at home and abroad, suggesting the world's second largest economy is still struggling to gain traction, despite strong credit growth.
"The Chinese data was broadly in line with expectations but for a lot of investors it's quite surprising how little pass through there has been from very strong credit stimulus in the last six months into broader economic activity," said Manik Narain, an emerging FX strategist at UBS.
Chinese mainland stocks slipped 0.28 percent as investors took profits following Tuesday's 3.3 percent gains and Hong Kong shares fell 0.26 percent.
Adding to investors' jitters was the yuan, which approached its weakest reading since early 2011 as the central bank set the daily guidance rate at a five-year low for a third straight session. The yuan moves overshadowed the impact of a slight pull back in the dollar.
The worries over Chinese growth are amplifying at a time when the U.S. Federal Reserve is looking increasingly likely to raise interest rates over the summer.
Asian emerging currencies mostly fell, with the South Korean won at near three-month lows. Data showed exports falling in May and inflation cooling more than expected, pointing to sluggish domestic demand and bolstering expectations of a rate cut.
South Korea's PMI reading was at a five-month high, but the rise was marginal.
"The data is telling us that EM's exernal sector is effectively still in recession - that is one factor that will keep currencies volatile and equity markets quite choppy," said Narain. "These are growth-sensitive asset classes and that is one part of the story that is under deep strain at the moment."
The Indian rupee tumbled to a one-week low, hit by media reports that central bank governor Raghuram Rajan who is popular with business and investors, could refuse a second term at the helm of the bank.
In emerging Europe, however, the PMI data was better, with Hungary and Poland posting faster manufacturing activity growth, thanks to accelerating new orders.
Budapest stocks rose over one percent but Warsaw shares slipped around one percent to three-and-a-half month lows. The forint and the zloty weakened against the euro, reflecting the broader mood of risk aversion.
The Russian rouble also slipped to one-week lows against the dollar in line with weaker oil while dollar-denominated Moscow stocks fell almost one percent .
Russian PMIs continued to show manufacturing activity contracting, albeit at a slower pace.
The Turkish lira remained under pressure and stocks retreated 0.53 percent as manufacturing continued to contract in May and the weak lira drove up manufacturers' input prices.
"The pick-up in the price components of the Turkish PMI survey looks worrying and supports our view that underlying price pressures in the economy remain strong," Liza Ermolenko, an economist at Capital Economics told clients.
Mozambique's metical currency traded just off record lows hit on Tuesday, weighed down by fears of imminent default .
Comments
Comments are closed for this article.