Emerging market stocks dip as risk sentiment weakens

Emerging market stocks fell on Thursday as risk appetite waned on fears the US-China trade war could worsen and the impact protests in Hong Kong may have on ties between the world’s top two economies.

China’s commerce ministry said Beijing will not yield to any “maximum pressure” from Washington, and any attempt by the United States to force China into accepting a trade deal will fail. Ministry spokesman Gao Feng said “nothing is agreed until everything is agreed”.

The statement adds to tensions after China demanded earlier this week the United States stops interfering in Hong Kong’s affairs after protests against an extradition bill that would allow people to be sent to mainland China for trial. US President Donald Trump later said he is sure China and Hong Kong would be able to “work things out”.

Deutsche Bank strategists said the possibility of Trump bringing the issue of the protests up with China at the G20 summit in Osaka in late June was worth watching out for.

“The argument is that any interference would likely heighten tensions between the US, and China at what is clearly already a very tense time,” they wrote in a note.

MSCI’s developing world stocks index dropped 0.4%. Shares in benchmark heavyweight China were supported by hopes Beijing will roll out further stimulus measures amid its bruising trade war with Washington.

Amid broad uncertainty, foreign exchange traders boosted exposure to safe havens such as Japan’s yen, prompting riskier developing world currencies broadly softening against the dollar.

Hong Kong-traded stocks dipped marginally while the Hong Kong dollar was stable amid higher local inter-bank borrowing costs. One-month HIBOR hit 2.63% earlier in the day, standing at its highest since October 2008.

Taiwanese stocks fell 0.5%, while peers in South Korea declined 0.3%, weighed by chip makers. SK Hynix slid 3.4% on concerns about lower chip demand.

China’s yuan inched lower in onshore trade, with losses limited by comments from regulators on keeping the currency stable.

“We do not believe USDCNY 7.0 is a line in the sand,” Mark Haefele, UBS Global Wealth Management’s chief investment officer, wrote in a note.

“Slowing economic growth and trade tensions will likely push USDCNY to 7.0 over the next three months, but we don’t expect it to stay above that level for long.”

Turkey’s lira was 0.3% softer, while stocks fell 0.9%, with shares of the country’s banks matching that decline.

The country’s central bank left borrowing costs at 24% on Wednesday, but its comments appeared to pave the way to a rate cut soon.

Russia’s rouble strengthened 0.5%, aided by a 2.7% rise in the price of oil, a key Russian export. Moscow-listed equities – trading after a market holiday on Wednesday – slipped 0.3%.

Locally traded shares of Gazprom dipped 0.2%. Trump said on Wednesday he was considering sanctions over Russia’s Nord Stream 2 natural gas pipeline project, which the United States has told European companies to avoid.

South Africa‘s rand firmed 0.2%, although gains were capped as an investigation into a donation for President Cyril Ramaphosa’s 2017 campaign for leader of the governing African National Congress (ANC) party marred sentiment.

Later in the day, mining production data for April is due. It is expected to have contracted 0.75% year on year, according to a Reuters poll.