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Emerging markets maintain losses after Argentina, Turkey moves

More pain for emerging markets.

Emerging-market assets held losses in Asian trading Tuesday, signalling Argentina’s plan to narrow its fiscal deficit and comments from Turkey’s central bank hinting at a rate increase have yet to shore up investors’ confidence.

A MSCI measure tracking developing-nation currencies fell for a second day, losing 0.2% as of 11:19 a.m. in Singapore, while the index tracking shares slipping 0.2%, after falling for the past four sessions. Indonesia’s rupiah weakened for a sixth day, sinking to a fresh two-decade low.

Argentina’s government announced emergency measures Monday, including new export taxes, after the peso tumbled 26% last month. Trading in the currency was too thin to judge if the plan was a success or not, with that market verdict set to come Tuesday. In Turkey, the central bank vowed to reshape its monetary policy stance at a September 13 meeting after consumer inflation accelerated faster than expected in August.

The two nations have been at the epicentre of emerging-market tumult this year as investors assess their idiosyncratic issues as well as global headwinds including tighter central bank policy and the China-US trade dispute. Argentine stocks led global equities lower on Monday and emerging currencies joined the decline, offering no reprieve for investors despite the US holiday.

“The measures announced by Argentina and Turkey are probably not enough to lead to a significant improvement in their fundamentals,” says Tsutomu Soma, general manager for fixed-income trading at SBI Securities in Tokyo. “Contagion risks to other emerging markets are growing especially as the Fed tightens, leading to selloffs of some assets from weaker economies.”

Here’s what other analysts are saying about the latest in emerging markets:

‘Set to suffer’

Michael Every, head of Asia financial markets research at Rabobank in Hong Kong:

“Emerging-market FX are set to suffer almost regardless of what they do, the only issue is how much.” The dollar will remain on the front foot against emerging markets as long as the US continues to raise rates and boost fiscal spending while keeping the trade war fears on the radar

‘Further pain’

Lukman Otunuga, research analyst at FXTM:

“Emerging market currencies could be destined for further pain if the turmoil in Turkey and Argentina intensifies.” “The combination of global trade tensions, a stabilising US dollar and prospects of higher US interest rates may ensure EM currencies remain depressed in the short to medium term.”

‘A penny short’

Stephen Innes, head of Asia Pacific trading at Oanda in Singapore:

Argentina’s measures are “likely a day late and a penny short” “These moves are a step in the right direction, but they’re unlikely to be convincing enough to remove currency speculators from the driver’s seat. I guess it’s all down the IMF’s ‘White Knight’ to the rescue. However, we are getting into the realm of unquantifiability which makes the market utterly untradable.”

Most vulnerable

Masakatsu Fukaya, an emerging-market currency trader at Mizuho Bank:

Contagion risks from Argentina and Turkey are growing for other emerging markets and economies with weak fundamentals such as those with current-account deficits and high inflation rates. Currencies of countries such as Indonesia, India, Brazil and South Africa have been among most vulnerable. The Fed’s rate increases and trade frictions means the underlying pressure on emerging currencies is for a further downward move.

© 2018 Bloomberg

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