Emerging market equities hovered below six-month highs on Wednesday as investors sought clarity around U.S.-China trade negotiations, while South Africa‘s rand led declines among currencies that were stuck in a tight trading range.
The MSCI EM stocks index was down 0.17%, with Chinese stocks dropping about 0.4% after three straight days of gains. Philippine stocks tumbled 2.3%, taking the biggest hit, as investors locked in profits after their biggest two-day winning streak since June 3.
Signs that Beijing and Washington were close to clinching a trade deal sparked a wave of buying in emerging markets on Tuesday, sending the MSCI stock index to its strongest close since May 6 and its currencies counterpart to a three-month high.
Investors are hoping the two sides will roll back at least some of the punitive tariffs imposed on each other’s goods, but it is still uncertain when or where U.S. President Donald Trump will meet Chinese President Xi Jinping to sign the agreement.
“What’s very apparent at this stage is, were you to see a deal put in place that removed a lot of tariffs and impediments that have been there for the last 18 months, we don’t think the market is pricing that in fully at this stage,” said Luke Barrs, head of fundamental equity client portfolio management for EMEA at Goldman Sachs Asset Management.
The yuan held steady in offshore trading after the currency broke past the psychologically important 7-per dollar level on Tuesday. The People’s Bank of China (PBOC) set its daily reference rate for the currency’s trading band at 7.0080, its strongest level since Aug. 8.
A central bank official said cross-border usage of China’s yuan exceeded 14 trillion yuan ($2 trillion) during the January-September period, up 20% from a year earlier.
With a host of recent business surveys and upbeat U.S. jobs growth alleviating fears of a global downturn, analysts trimmed their 2019 earnings forecasts for Asian companies by a smaller margin over the past month, Refinitiv data showed.
Analysts, in fact, upgraded their earnings outlook for Chinese and Taiwanese firms by an average of 1.4% and 1.3% respectively, the data showed.
“As much as we fixate on trade and as much as it has a bearing on the short term outcome for EM, fundamentals will be the key driver and that remains fairly healthy even through what has been a challenging period,” Barrs said.
Among other currencies, South Africa‘s rand slid 0.5% after gaining 2.5% in the past three sessions, as optimism over rating firm Moody’s retaining the country’s credit status at investment level waned. By 13:51 it was down 0.22% at 14.7876 to the US dollar,
The Thai baht slid 0.2% as the central bank cut interest rates to a record low of 1.25% and announced further relaxation of foreign exchange rules in a bid to curb the strengthening of the baht, Asia’s top performing currency this year.All eyes were on South African manufacturing data due later in the day, the first set of key indicators since last week’s dismal budget speech where the finance minister slashed the 2019 economic growth forecast to 0.5% for 2019.
Poland and Romania are also due release their monetary policy decisions, with interest rates expected to remain on hold.