LONDON: Emerging markets began the week on the back foot after a barely disguised broadside at China from Donald Trump reawakened worries about trade wars and as crisis-hit Venezuela prepared for a meeting with its creditors.
MSCI’s widely-tracked emerging market stocks index fell for a third straight session for the first time since September and many of the big regional currencies also struggled as the dollar made ground.
The standout was South Africa’s rand though as speculation that one of its top Treasury officials was set to quit the government sent it to its lowest level in a year and pushed bond markets down too.
Lebanon’s dollar bonds rebounded meanwhile after Prime Minister Saad al-Hariri said he would return to the country soon and could rescind his resignation if Shi’ite group Hezbollah agreed to stay out of regional conflicts.
The bonds have sold off heavily over the last week on belief Hariri had been coerced by Saudi Arabia into resigning. The resignation and its aftermath thrust Lebanon back to the forefront of the conflict between Sunni Muslim Saudi Arabia and Shi’ite Muslim Iran.
The 2024 bond rose 2.4 cents while issues maturing 2027, 2028 and 2032 rose as much as 1.6 cents ,,, Reuters data showed.
“There’s been a slight easing in concerns that a proxy conflict will erupt between Iran and Saudi Arabia,” said Jason Tuvey, an economist at Capital Economics.
“But with (Prince Mohammed bin Salman) taking an increasingly aggressive stance, markets have built in an additional risk premium into the regional volatile markets.”
There were few other new developments over the weekend in the Middle East after last week’s purge of fellow royals and officials by Saudi Arabia’s Crown Price.
The Saudi stock index fell as much as 1.5 percent during Sunday but closed only 0.3 percent lower after state-linked funds once again bought stocks in late trade, a deliberate operation to support the market and prevent a crash, asset managers said.
The index was down about 0.5 percent again early on Monday.
There were data and political signals regarding China too.
Figures from Beijing showed new bank loans fell more than expected in October to their lowest in a year, as banks tightened up on mortgage and corporate lending amid a continuing clampdown on more risky lending activities.
Banks extended 663.2 billion yuan ($99.83 billion) in net new yuan loans last month, down from 1.27 trillion yuan in September and below a Reuters forecast 780 billion yuan. Chinese stocks ended the day at a near 2-1/2 year high.
Investors also piled into financial stocks, betting Beijing’s latest move on Friday to widen foreign access to its giant financial sector would attract fresh international money, and push up the valuations of Chinese lenders and insurers.
The latest changes include raising the limit on foreign ownership in joint-venture firms involved in the futures, securities and funds markets to 51 percent from the current 49 percent. Meanwhile, China will drop the foreign ownership cap on banks.
“Given the fast expansion in financial assets over the past few years, we believe that there will be a slew of optimistic headlines carrying positive emphasis on their value,” wrote Raymond Yeung, ANZ’s chief economist of Greater China.
Comments from Donald Trump after the Chinese leg of his first trip to Asia also grabbed attention. Speaking in Vietnam a day after leaving China, he struck a stark tone on trade saying the current trade imbalance was “not acceptable”.
“From this day forward, we will compete on a fair and equal basis. We are not going to let the US be taken advantage of anymore.”
The other main focus was on Venezuela and its planned meeting with debt holders.
It is unclear how widespread investor participation in Monday’s meeting in Caracas will be.
US-based creditors are not prohibited from attending the meeting, but are barred from dealings with Venezuelan Vice President Tareck El Aissami and Economy Minister Simon Zerpa, effectively its top debt officials.
“People have bet on Venezuela declaring default – never,” Venezuelan President Nicolas Maduro said during his weekly Sunday broadcast. “Default will never reach Venezuela. (We) will always have a clear strategy and right now that strategy is to renegotiate and refinance the foreign debt.”