* Offshore yuan hits record low
* S.African rand drops 0.7%, India’s rupee hits 5-month low
* Investors broadly scale back risky bets
By Aaron Saldanha
Aug 5 (Reuters) - China’s yuan fell through the key level of 7 per dollar on Monday as emerging market currencies softened broadly, engulfed by risk aversion on fears of a slowdown in global trade.
EM stocks were also hammered by fast receding risk appetite, with MSCI’s index of emerging market equities dropping 2.1%. MSCI’s developing world currencies index fell 0.9% and was trading around its lowest level since the end of May.
“Risk sentiment has been completely turned on its head,” said Simon Harvey, FX market analyst at Monex Europe.
The yuan was down 1.3% after authorities let it breach 7 for the first time in more than a decade, suggesting Beijing might be willing to tolerate more currency weakness that could further inflame a trade conflict with the Washington.
“If Chinese officials are going down the route of using the currency depreciation as a buffer against the tariffs and global slowdown, that’s fine and completely understandable because it can be a byproduct of market forces,” Harvey said.
“But if they are using it as a tool to mitigate or react to U.S. tariffs...they need to be careful not to throw more fuel on the fire with Donald Trump.”
On Thursday, the U.S. president stunned financial markets by signalling 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1.
Chinese equities fell 1.6% on Monday, while their peers in Hong Kong - buffeted by uncertainty around how local pro-democracy protests will pan out - ended 2.9% lower.
Elsewhere in Asia, India’s rupee hit a five-month low after the government in New Delhi revoked the special status of Kashmir.
South Korean shares slid more than 2% to close at their lowest since June 2016, as a diplomatic row with Japan escalated.
South Africa’s rand was 0.7% softer, after hitting multi-week lows against the dollar earlier in the day.
The rouble firmed, paring the previous week’s heavy losses that were triggered by new U.S. sanctions against Russia.
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For RUSSIAN market report, see (Reporting by Aaron Saldanha in Bengaluru; editing by John Stonestreet)