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Last updated: January 24, 2014 2:29 pm
Emerging market stocks have fallen sharply, tumbling to their lowest since July 2013 as investors took fright at a plunge in Argentina’s peso and wider volatility sweeping through financial markets amid concerns over Chinese growth.
The FTSE Emerging Markets index fell 1.2 per cent on Friday, extending this year’s slump to more than 4.7 per cent.
Fears over emerging markets have heightened since the US Federal Reserve announced plans to scale back and eventually end quantitative easing this year. But those concerns have been compounded by worries over Chinese economic growth – a big driver for the developing world as a whole.
The movements in emerging markets have been “spectacular” this week, said Jane Foley, senior currency strategist at Rabobank. “Domestic fundamentals have come home to roost.”
As emerging market currencies took another dive, investors poured money into US Treasuries, the yield on 10-year US government debt falling to 2.73 per cent.
Turkey’s lira fell 1.6 per cent on Friday following Thursday’s heavy losses, with Russia’s rouble falling to its lowest level in almost five years against the US dollar.
South Africa’s rand slid to its weakest level since October 2008. Even Mexico’s peso, one of the stronger currencies in the developing world, declined for a fourth straight day to its weakest level against the US dollar since June last year.
Despite concerns over tapering and its impact on the developing world, Alexandre Tombini, the central bank governor of Brazil, insisted that his country had plenty of “buffers” to deal with any market turbulence.
“Tapering is a net positive for a country like Brazil,” he said, arguing there was no reason to fear that a shift in US monetary policy would hurt Brazil in any serious way. “This change of relative prices since (taper talk) started is part of the process [of normalisation].”
The market volatility was triggered by a survey released on Thursday that indicated Chinese manufacturing unexpectedly contracted in January. That was followed by a nose-dive in the value of Turkey’s and Argentina’s currencies. The Argentina Peso had its biggest one day drop, down 14 per cent, on Thursday and continued its drop against the US dollar on Friday, weakening a further 1.7 per cent.
Of the 24 emerging market currencies tracked against the US dollar by Bloomberg data, only three, the Chinese renminbi, the Thai baht and Taiwanese dollar, were in positive territory.
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