LONDON, Aug 1 (Reuters) - Weak factory activity data and a U.S. proposal for higher tariffs on $200 billion of Chinese imports weighed on investor appetite for emerging market stocks on Wednesday while a stronger dollar created headwinds for currencies.
MSCI’s benchmark emerging stocks index fell 0.2 percent in early trade after discouraging data out of China set the tone, before recovering to trade flat in European hours.
A private survey showed that Chinese manufacturing grew at the slowest pace in eight months in July as export orders declined in their worst slump since June 2016.
Chinese mainland shares tumbled two percent to a near two-week low, their worst daily loss in a month. Hong Kong shares also fell 0.9 percent while the yuan weakened 0.2 percent offshore. The yuan has just suffered its worst four-month fall on record.
Investor sentiment was also crushed by Washington’s plans to propose higher tariffs of 25 percent on $200 billion worth of Chinese imports, after initially setting them at 10 percent.
This revived fears of an escalating trade war, even as Bloomberg reported that the United States and China were seeking to restart negotiations.
The worry is that tit-for-tat tariffs will crimp global growth, by affecting integrated supply chains and hitting export-oriented emerging economies hard.
“The threat of even higher tariffs is quite worrisome, to try to bring the Chinese to the negotiating table,” said Koon Chow, a strategist at UBP, adding it was not just negative for emerging markets, as ultimately the U.S. consumer would suffer as well.
Other manufacturing surveys from across emerging Asia told a similar story to China’s, with South Korean factory activity contracting for a fifth month, marking the worst slump since November 2016, while Indian factory growth also eased.
In emerging Europe, Russian, Turkish and Polish manufacturing activity also slowed.
“It’s definitely disappointing and sends a bit of a chill across the whole narrative that EM is in pretty good shape,” said Chow. “You are getting a broader chill in the global manufacturing chain, emanating from China itself, which makes for more difficult times.”
Outperformers included Indonesia, which rose 1.6 percent, and South Korea, up 0.5 percent, with the latter’s July exports up 6.2 percent year-on-year.
Tech-heavy Taiwan also got a boost, up 0.4 percent to two-week highs after Apple Inc. beat expectations for its quarterly results.
Currencies were mainly weaker, with Turkey’s lira among the biggest fallers, down 0.4 percent, a day after the central bank sharply raised its inflation forecast for this year and next. Turkish stocks fell 0.5 percent.
Investors have been unnerved by the dispute between Turkey and the United States over an American pastor, which has raised the threat of U.S. sanctions against Ankara.
South Africa’s rand slipped 0.2 percent after President Cyril Ramaphosa said the ruling party would press ahead with plans for the expropriation of land without compensation.
The Indian rupee also eased 0.2 percent ahead of a central bank meeting at which the bank may raise rates again by 25 basis points to 6.5 percent.
Pakistan’s rupee firmed 0.9 percent although the U.S. has warned against any potential IMF bailout that pays off Chinese loans to Pakistan.
In emerging Europe, Hungary’s forint was the big underperformer, weakening 0.2 percent against the euro.
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Morgan Stanley Emrg Mkt Indx 1087.22 -0.24 -0.02 -6.15
Czech Rep 1093.03 +0.69 +0.06 +1.38
Poland 2298.44 -3.69 -0.16 -6.61
Hungary 35830.43 +88.37 +0.25 -9.01
Romania 7993.80 +16.06 +0.20 +3.10
Greece 760.42 -0.81 -0.11 -5.23
Russia 1168.26 -4.80 -0.41 +1.20
South Africa 51279.91 -35.09 -0.07 -2.39
Turkey 96705.09 -247.14 -0.25 -16.15
China 2824.21 -52.19 -1.81 -14.60
India 37520.03 -86.55 -0.23 +10.17
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.58 25.56 -0.09 -0.22
Poland 4.27 4.27 +0.01 -2.31
Hungary 321.10 320.54 -0.17 -3.29
Romania 4.62 4.62 -0.11 +1.14
Serbia 117.89 117.90 +0.01 +0.43
Russia 62.60 62.50 -0.16 -7.89
Kazakhstan 348.41 347.36 -0.30 -4.48
Ukraine 26.96 26.85 -0.39 +4.41
South Africa 13.27 13.27 -0.00 -6.88
Kenya 100.40 100.40 +0.00 +2.69
Israel 3.67 3.67 -0.16 -5.35
Turkey 4.93 4.91 -0.46 -23.18
China 6.80 6.80 +0.06 -4.31
India 68.53 68.45 -0.12 -6.86
Brazil 3.75 3.76 +0.04 -11.78
Mexico 18.69 18.64 -0.22 +5.15
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 351 -1 .02 7 81.62 1
Reporting by Claire Milhench; graphic by Karin Strohecker, Editing by William Maclean