US-China trade worries pushed emerging market shares to their lowest since January, though some conciliatory noises from the two sides did at least help slow the slide.
Hundreds of billions of dollars have been wiped off EM assets since the tensions have returned. MSCI’s main developing market index was down another 0.6% on Tuesday having already lost more than 8% over the last month.
Traders tried to repair some of the damage as Beijing said both it and Washington would continue to pursue talks. Turkey and South Africa to Poland and Russia clawed up as much as 0.5%, but after 0.5%-1.7% falls in China, Hong Kong and Indonesia the overall direction was still down.
“We are in the crosshairs of investing in risk assets against the backdrop of a trade war,” said fund manager GAM’s investment director for emerging market equities, Tim Love.
The easing of the selling, however, showed the idea of “bad news is good news” was back in the market, Love added, with investors speculating on more Chinese economic stimulus and a potential US interest rate cut.
There were plenty of other things to digest too.
MSCI had published a review of what gets included in its indexes overnight. A total of 26 China A shares will now be added to MSCI China, while 30 Saudi stocks and 8 eight from Argentina will join the broader 24-country EM benchmark.
Turkey’s lira was modestly lower again too, having been helped on Monday by reports that Ankara was considering a US request to delay the purchase of a Russian S400 missile-defense system.
Turkish stocks inched higher in Istanbul but it’s been an excruciating time. If prices are converted into dollars — most international investors use dollars — the slump in the lira means equities there are back at 1990 levels.
GAM’s Love also noted that Turkish banks now had the same or lower key valuation metrics as Greek banks at the height of their country’s debt crisis.
“If you really want to push the risk spectrum you could pursue Turkey but you are flirting with capital controls,” Love said, adding that debt insurance markets now saw only Argentina as a comparable level of risk.
“Only the brave will play this market,” he said. “The core have put it in the too problematic basket.”