Emerging market shares were set for their steepest drop in a month, down 1.3% on Monday, and the 3.3% drop in Hong Kong led the dips as China Evergrande slid to 11-year lows, starting a fast-approaching debt settlement deadline.
Fear of a trickle effect from the possible default of debtor Evergrande and caution ahead of several central bank meetings, including the US, Turkey and the South Africa, weighed the sentiment and pushed investors towards the safety of the dollar.
“As long as this state of uncertainty persists, we will see higher volatility on concerns that this could spread and perhaps jeopardize the already slowing economic recovery in China,” said Cristian Maggio, head of EM strategy at TD Securities.
He said the risk of the Fed cutting stimulus increases the likelihood of a higher dollar rally and, combined with price volatility in China and the deterioration in the growth outlook, creates the perfect storm for EM.
MSCI’s EM currencies index fell xx% to hit a three-week low. African Rand fell 1.52% to 14,795. The currency has lost nearly 5% since last Monday.
As of 11:09, JSE All Share was down 2.89% to 61049.95, while Top 40 was down 3.10% to 54851.65.
Wayne McCurrie, portfolio manager at FNB Wealth & Investments, told Moneyweb: “There seems to be a small panic going on with real estate company Evergrande in China – they are in deep debt and could default on their loans – so Hong Kong markets are falling pretty strongly. Chinese markets are closed… but Hong Kong markets fell significantly due to this concern. [Evergrande]”
What is even more important for the South African markets, he says, is that commodity prices have fallen quite dramatically.
“Iron ore is below a hundred dollars and prices of all commodities are falling – so that’s the single biggest negative impact, and we’re seeing it in yields as well,” McCurrie says.
By late Monday morning, a number of commodities stocks were among the bottom 5 of the JSE’s 100 largest shares: Anglo American (down 8.51%), African Rainbow Minerals (-7.76) and Kumba Iron Ore (- 5.52) .
McCurrie said that we can expect the negative drop to continue for a while, but it will be a much more subdued drop.
“My estimation is that this downward cycle will continue for about a year. But having said that, a large part of the decline has taken place and secondly, this bearish cycle will be much milder than previous dips. So now is not the time to panic, it should have been three months ago when iron ore was still at $220/ton.”
He added that commodity shares are starting to approach the buy zone.
Asian currencies are expected to be impacted by a possible meltdown in Evergrande as investors rethink their bullish bets on the yuan.
After posting its worst week in a month, the EM stock index extended its losses and is now down nearly 13% from its February 2021 highs. Chinese and South Korean markets were closed for a holiday.
After a bruising session in Asia, stock markets in Turkey, Russia and the South Africa Poland and Saudi Arabia fell between 1.4 percent and 2.4 percent.
Russian stocks are poised for their worst session in a month and falling oil prices have deepened the ruble’s losses.
Over the weekend, Russia’s ruling United Russia party retained its parliamentary majority in the election, as expected, but lost more than a tenth of its support, according to partial results.
Gazprom lost almost 1% after a group of MEPs asked the European Commission to investigate Gazprom’s role in rising European gas prices.
Turkey’s lira fell to a 10-week low as the central bank turned to the central bank, which began to lay the groundwork for interest rate cuts under political pressure despite rising inflation.
Botswana’s pula currency hit a three-week high after ratings agency S&P revised its outlook from ‘negative’ to ‘stable’ on Friday, after an economic recovery backed by a strong diamond sector recovery would lead to improved fiscal and external performance. reached.