Emerging Markets-Delicate China hits stocks, strong dollar hurts FX
Shanghai (Sept 22) Emerging stocks hit a six-week low and a string of key currencies fell on Monday as more disappointing signals from China added to the pressure of a strengthening U.S. dollar.
Chinese and other Asian stocks were the main offenders as MSCI's main emerging equities index fell 0.7 percent to its lowest level since Aug. 8.
Hopes have been building that China will soon introduce stimulus measures to tackle a soft patch in the economy, but Finance Minister Lou Jiwei said over the weekend there would be no dramatic change in policy.
Investors are now worrying that China's manufacturing PMI reading on Tuesday could come in below the 50 level, indicating that manufacturing activity is now contracting.
"All the macro data now in China is being closely watched, whether it's PMI, retail sales or housing. Bottom line is we've come to 7 percent (growth) levels, now we will go down to 6 percent levels. It's just a readjustment phase," said Simon Quijano-Evans, head of emerging markets research at Commerzbank in London.
In Russia, markets also headed lower on Monday amid signs the ceasefire in eastern Ukraine is under strain after apparent violations over the weekend.
The dollar-denominated RTS index was down 0.3 percent and the rouble declined 0.5 percent against the dollar to trade close to the all-time lows reached earlier this month.
Investors see Western sanctions in retaliation for Moscow's role in the Ukraine crisis as adding to the damage already inflicted on Russia's economy by a weakening oil price.
Prime Minister Dmitry Medvedev said on Friday that Russia would not isolate its sanctions-hit economy from the West, but improving relations with Asian countries has become a key strategy.
South Africa's rand was under pressure too. It dropped 0.4 percent to trade close to the 7-month lows touched on Friday after news that central bank governor Gill Marcus will leave her post in November. Stocks in Johannesburg fell 1 percent.
"Whatever you look at in South Africa, the macro political backdrop, infrastructure, unemployment, income inequality - there is very little support out there," Quijano-Evans said.
Turkey's lira was also at six-month lows while Istanbul's main share index slipped 0.34 percent.
Turkey is seen as vulnerable to a strengthening dollar because capital fleeing to chase higher yields available elsewhere would expose a reliance on external financing. Investors are also eyeing the possibility of the conflict in neighbouring Syria spilling over the border.