“We continue to maintain a cautious stance on Asian currencies, and expect more volatility till the time some of these growth concerns abate,” Prashant Singh, senior portfolio manager for emerging-markets debt at Neuberger Berman in Singapore.
Multi-Asset Rout
Currency losses are also driving a selloff in local bonds, which sank to the worst first four months of a year on record, as performance in April alone was the worst since the peak of the pandemic in March 2020. The main drag here was China again, with a 41% weight in the Bloomberg index for the asset class. The nation’s bonds posted the biggest monthly retreat since the 2008 financial crisis, while sparking double-digit losses in countries as varied as South Africa, Poland and Chile.
Equities weren’t spared either. A rout in Chinese technology shares listed in Hong Kong echoed half a world away in Johannesburg. Naspers Ltd., which owns 28.8% in Tencent Holdings, plunged to a five-year low. A three-week slump partly fueled by panic over Covid cases in China -- and partly by rising U.S. yields -- led emerging-market stocks to erase $2.7 trillion in market value.
China’s economic activity contracted sharply in April as the lockdown of Shanghai escalated concerns about further disruption to global supply chains. Factory activity fell to the lowest level in more than two years, with the official manufacturing PMI dropping to 47.4 from 49.5 in March, according to data released by the National Bureau of Statistics on Saturday.
“China’s slowdown will compound the challenging outlook for emerging economies facing soaring energy prices and tighter monetary policy from the major central banks,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd.
Here are the main things to watch in emerging markets in the week ahead:
• South Korea, Thailand and Taiwan will be releasing latest inflation data for April, with March price growth having risen to at least a near-decade high across all three economies
• Russia’s PMI survey will be one of the first glimpses of activity in April, the second full month of President Vladimir Putin’s war against Ukraine
• Bond investors will be on the lookout for coupon payments in dollars as the clock is ticking for the country’s 30-day grace period, which ends May 4
• Turkey’s inflation is set to rise to 65% in April, the highest since 2002, but still unlikely to trigger a response from a politically-constrained central bank
• In Brazil, the highlight of the coming week is the monetary policy meeting, where the yield curve shows investors believe the central bank will deliver on its pledge to raise the policy rate by 100 basis points
• In Chile, the central bank is likely to continue its tightening cycle at a more moderate pace and increase the benchmark interest rate to 8%
--With assistance from Amelia Pollard and Karl Lester M. Yap.
This article was provided by Bloomberg News.