Risk Sentiment Worsens Amid Jitters Over China Stocks

Markets

Emerging-market shares headed for the biggest weekly loss in almost three months as signs that Chinese authorities are seeking to prevent an asset bubble and nervousness over U.S.-China tensions dragged down mainland equities. Developing-nation currencies were little changed over the week as the worsening sentiment was balanced by a weaker dollar. Losses in risk assets were tempered by signs of progress in developing a coronavirus vaccine.

The following is a roundup of emerging-market news and highlights for the week through July 17:

Highlights:

  • The Trump administration rejected China’s expansive maritime claims in the South China Sea, reversing a previous policy of not taking sides in such disputes and escalating tensions with Beijing on yet another front
    • President Trump ordered an end to Hong Kong’s special status with the U.S. and signed legislation that would sanction Chinese officials responsible for cracking down on political dissent in the city. At the same time, he has decided against moving to undermine the Hong Kong dollar’s peg to the greenback, people familiar said
    • Trump has indicated to aides that he doesn’t want to further escalate tensions with Beijing, and has ruled out additional sanctions on top officials for now, according to people familiar
    • U.S. Secretary of State Michael Pompeo said the nation will impose visa restrictions on some employees of Huawei over the Chinese Communist Party’s human rights abuses
    • China will impose unspecified sanctions on defense contractor Lockheed Martin Corp. after the U.S. approved a possible $620 million deal to supply missile parts to Taiwan
    • Kweichow Moutai fell the most in nearly two years after the People’s Daily took aim at the high price of the liquor it makes. The plunge reverberated across China’s almost $10 trillion stock market
    Asset Moves as of 3:17 p.m. in Singapore Weekly
    MSCI EM stocks index -1.6%
    MSCI EM FX index +0.01%
    Bloomberg Barclays global EM local currency bond index (up to Thursday) +0.3%

    Asia:

    • China’s exports and imports both rose in June, signaling that demand at home and abroad may have started to recover even as the pandemic ravages the global economy
      • Chinese commercial banks issued a record first-half amount of bond-like securities backed by soured loans this year, as a virus-induced economic slowdown brought on a fresh wave of financial stress
      • A sell-off in Chinese domestic corporate bonds has intensified, pushing risk premiums over government debt to a two-year high as more money leaves for the country’s stock market
      • President Xi Jinping pledged to provide a better business environment for foreign firms, even as Chinese companies come under increased scrutiny abroad
      • Bank of Korea Governor Lee Ju-yeol said helping the virus-hit economy took precedence over property market concerns after keeping interest rates at a record low
      • South Korea’s jobless rate unexpectedly fell in June, but remained well above levels before the pandemic struck
      • South Korea has set the smallest increase in its minimum wage on record as the government struggles to ease the burden on small businesses and stimulate an economy reeling from the coronavirus

      India’s trade balance returned to a surplus in June after 18 years, as imports slid more than exports

      • A balancing act awaits India’s central bank as it tries to build foreign-exchange reserves and support the bond market
      • India’s retail inflation unexpectedly quickened in June, signaling price pressures in an economy that’s exiting a nationwide lockdown
      • A brutal day of hand-to-hand combat on the India-China border last month may accomplish what years of Pentagon and White House outreach has struggled to achieve: draw the U.S. and India closer militarily
      • The European Union and India have agreed to increase naval cooperation and security consultations amid growing tensions between China and its maritime neighbors
      • Jakarta will remain under some social distancing rules for two more weeks after coronavirus cases surged following the easing of a partial lockdown a month ago

      Thailand’s finance minister resigned along with three other Cabinet members in a shakeup of the government’s economic team during the nation’s worst crisis in decades

      • Bank of Thailand said it will preserve the remaining policy space from the current record low of 0.5% to prepare for a “worst-case scenario”

      Malaysian Prime Minister Muhyiddin Yassin’s narrow win in a key parliamentary vote showed the prospect of snap elections still remains a risk

      • One of the world’s busiest border crossings is slowly reopening. Singapore and Malaysia will implement a reciprocal green lane for travel across their border, which some 300,000 people traverse by land each day
      • Malaysia’s Securities Commission said the recent surge in retail investors is a boon for the country’s stock market and doesn’t pose a risk

      Philippine President Rodrigo Duterte has put his public approval to the test after the closure in the middle of the coronavirus pandemic of the nation’s largest broadcaster, a producer of newscasts and romantic soap operas that as many as three out of four Filipinos wanted to stay on the air

      • Manila will remain under loose movement restrictions, but may return on a stricter lockdown in two weeks if coronavirus cases continue to rise
      • The Philippine central bank will likely keep policy accommodative over the next two years to deal with lingering economic damage from the coronavirus pandemic, Governor Benjamin Diokno said
      • Overseas remittances fell 16.2% in April from a year earlier, the most in 19 years, after thousands of Filipino lost their jobs abroad

      EMEA:

      • Turkey’s market regulator fined seven brokerages for violating short-selling rules and imposed a six-month trading ban on individuals it suspects of stock-price manipulation through social-media platforms
        • Turkish President Recep Tayyip Erdogan achieved his goal of converting the Hagia Sophia into a mosque, ignoring international calls to keep it as a museum and stamping his Islamist-rooted politics on the Istanbul skyline

        Saudi Arabia’s stock exchange expects share sales to pick up after coming to a halt during the early stages of the coronavirus pandemic

        • The stimulus-driven “everything rally” has sidestepped Saudi Arabian stocks. The equity market is underperforming its emerging-market peers by a factor of one to seven as investors fret over the oil-dependent kingdom’s growth outlook
        • Saudi Arabia has removed two million people from an assistance program meant to soften the blow of its economic overhaul, stirring frustration among some during the worst downturn in decades
        • Egypt took another step toward further opening up its local debt to foreigners and reviving a market that’s been a favorite with investors. Lawmakers approved a new central security depository this week, a major requirement for allowing Egypt’s bonds and bills to be settled by Euroclear Bank SA
        • South African Airways’ creditors and unions approved a rescue plan that includes at least 26.7 billion rand ($1.6 billion) in state funding and thousands of job losses

        Latin America:

        • Brazil’s economy expanded less than forecast in May, according to a key measure of activity

          • The Economy Ministry is expected to come up with a tax reform proposal after Lower House President Rodrigo Maia urged lawmakers to resume discussions
          • Economy Minister Paulo Guedes said the government should discuss a tax on financial transactions

          Chile’s President Sebastian Pinera pledged a “profound reform” of the country’s emblematic private pension system and more aid for the middle classes as he seeks to win back control of congress

          • The central bank kept borrowing costs unchanged at a record low of 0.5% for a third meeting

          Mexican legislators allegedly took bribes to vote in favor of a landmark energy reform during the previous administration, President Andres Manuel Lopez Obrador said

          • Pemex said 202 employees and five contractors have died of coronavirus, more than in any other company in the world, according to data reviewed by Bloomberg

          Ecuador’s Finance Minister said the country has reached an agreement with China to reschedule its debt payments

          • Some bondholder groups responded to the country’s debt restructuring proposal with revised terms
          Upcoming Data and Economic Releases:
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          • For Latin America, click here

          — With assistance by Alec McCabe

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