By 4 Minutes Read* China’s blue-chip stocks are down nearly 3% * Tightening fears and Xi’s rhetoric weigh* The EM stock index is expected to fall 2% this week* The currencies index is at a seven-week low* Investors may avoid some EMFX due to Fed tapering fears, according to a poll. Reuters, July 2 – An index of developing market equities fell 1% on Friday, on course for its worst daily drop in seven weeks, as currencies fell ahead of US jobs data that could provide indications on when the Federal Reserve will tighten its policy. On concerns that monetary policy could be tightened now that the Chinese Communist Party’s centenary festivities are over, Chinese blue-chip stocks sank over 3% in their worst day in four months, while the Shanghai Composite and Hong Kong shares both down about 2%. Investors were particularly concerned about President Xi Jinping’s threat to “mash the skulls” of any foreign nations attempting to coerce China. In a note, strategists at UBS Global Wealth Management wrote, “Our base scenario does not envisage a dramatic escalation in US-China policy measures, but the underlying tensions between the two nations remain in place.” The losses dragged down an Asia-heavy index of emerging market stocks by 1.1 percent, pushing weekly losses to nearly 2%, the highest since mid-May. Concerns about global growth continued to weigh on the index for a fourth day, as COVID-19 spreads, with vaccinations moving slowly in many emerging market countries. “Continued worldwide efforts to limit the virus risk the emergence of new variations, contributing to fresh concern,” UBS analysts warned, adding that investors should be prepared for future threats such as inflation, geopolitics, and the coronavirus. Non-farm payrolls are estimated to have climbed by 700,000 jobs last month, following 559,000 job growth in May, according to figures released later today in the United States. The statistics could help assess when the Fed starts tapering after it launched negotiations last month on how to cease its crisis-era huge bond-buying, economists said. According to a Reuters poll, investors may avoid the “fragile five” currencies of Brazil, India, Indonesia, Turkey, and South Africa in the next months due to Fed tapering concerns. However, commodities prices are expected to rise. A strong dollar ahead of the report hurt emerging market currencies, with South Africa’s rand losing the most, down 0.5 percent on the day and more than 2% for the week. China’s yuan and Turkey’s lira both fell 0.2 percent, while Russia’s rouble edged lower as oil prices fell following OPEC+’s decision to postpone a meeting. Turkey was added to a list of countries implicated in the use of child soldiers in the past year by Washington late Thursday, a move that is likely to further complicate the already strained relations between Ankara and Washington. Hard currency debt spreads in emerging markets are at their widest in two months, having increased by nearly 10 basis points since last Friday. See tmsnrt.rs/2egbfVh for a GRAPHIC of emerging market FX performance in 2021. See tmsnrt.rs/2OusNdX for a GRAPHIC on MSCI emerging index performance in 2021. FOR THE LATEST NEWS IN THE EMERGING MARKETS See the market report for CENTRAL EUROPE. See the TURKISH MARKET REPORT. See the RUSSIAN market report. Susan Mathew contributed reporting from Bengaluru, and Emelia Sithole-Matarise edited the piece./n
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