Emerging Market Currencies Sink as Chinese Stimulus Disappoints
TLDR
- Emerging market currencies drop due to investor skepticism over China's stimulus measures, impacting currencies like Philippine peso, South African rand, and Vietnamese dong.
- Latin American currencies hit hardest, with Mexican peso weakening the most in three weeks, alongside the Brazilian real, Chilean peso, and Colombian peso declining over 0.7% due to commodity price slump.
- Developing-market stocks decrease by 0.9% overall but rise by 0.4% when excluding China; traders invest in risky dollar debt from countries like Argentina and Egypt upon returning from a US bond market holiday.
A gauge tracking emerging market currencies dropped to a one-month low as investors grew skeptical about China's latest stimulus measures to revive its economy. The Philippine peso, South African rand, and Vietnamese dong were among other underperformers Tuesday.
The selloff hit Latin American currencies the hardest, with the Mexican peso weakening the most in three weeks, while the Brazilian real, Chilean peso, and Colombian peso all fell by more than 0.7% due to a slump in commodity prices.
This marks the second consecutive day of declines following China’s weekend announcement of support for its property sector, which failed to meet traders' expectations. A measure of developing-market stocks fell 0.9%, though it gained 0.4% excluding China. Elsewhere, traders coming back after a US bond market holiday are buying risky dollar debt from the developing world, with securities from Argentina and Egypt leading the advance.
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Key Takeaways
The lack of robust stimulus measures from China is fueling volatility in emerging-market currencies and stocks. While Beijing has announced substantial monetary support, investors are looking for stronger fiscal policies to stimulate consumer demand. The impact is already being felt as commodity-linked currencies, such as those in Latin America, weaken. Chinese stocks also underperformed their peers for the fifth time in six days, while the yuan and currencies of other nations tied to China’s economy, like the Philippine peso and South African rand, also saw declines.
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