Investors rattled by everything from trade wars to the end of central-bank stimulus are picking off the most vulnerable emerging markets one by one.
The rand weakened more than 2% on Friday, almost twice as much as any other major peer. That was hot on the heels of a slide in Brazil’s real Thursday that defied the best efforts of the central bank. Even the Turkish lira was buckling again, losing more than 1%, less than 24 hours after policy makers surprised investors with a greater-than-forecast interest-rate increase. Sovereign bonds retreated and the MSCI index of emerging-market stocks fell the most in more than three weeks.
South Africa was thrust into the epicenter of a selloff gripping emerging markets as policy makers in Europe and the US plan to pare back more than a decade of stimulus measures. Trade tensions are deepening ahead of the G-7 conference in Quebec, while some investors are avoiding risks before Tuesday’s historic meeting between US President Donald Trump and North Korean leader Kim Jong Un.
“We’re seeing a general emerging-market selloff on the back of trade war risks, less quantitative easing from the US and European Union and upcoming elections in Turkey, Mexico and Brazil,” said Hans Gustafson, an emerging markets FX strategist at Swedbank AB in Stockholm.
The world’s three biggest central banks meet next week, with the European Central Bank most closely watched after Peter Praet, the bank’s chief economist, signaled the first round of talks on when to stop buying bonds is imminent.