Emerging stocks tumble on trade tensions, rand battered

Emerging market stocks tumbled on Friday as investors shied away from risky assets amid simmering trade tensions ahead of a G7 meeting, while South Africa‘s rand fell to a near six-month low.

The growing rift between the United States and its major trading partners has soured market sentiment going into a Group of Seven summit on Friday and Saturday.

US President Donald Trump has already imposed hefty tariffs on steel and aluminium imports, and told China to cut its massive trade surplus with the United States.

This widened to $24.58 billion in May, with solid Chinese export growth of 12.6% overall. The US and China have threatened tit-for-tat tariffs on goods worth up to $150 billion each.

Per Hammarlund, chief emerging markets strategist at SEB, said the likelihood of there being at least one round of tariffs was weighing on investor sentiment: “If they can stop at one round it won’t have a major impact but if it escalates beyond that it will be a headwind for China and global growth, and emerging markets in general.”

MSCI’s benchmark emerging stocks index fell 1.5% and was set for its worst day in three weeks, but still on track to end the week in the black.

The biggest losers included Hong Kong, down 1.8%, while Chinese mainland stocks fell 1.3% to a one-week low. Concerns about the listing of big cap “unicorns” also weighed on the market.

In emerging Europe, Turkish stocks tumbled 1.8% and looked set to end the week down over 2%, Hungary shares lost 1.5% and Polish stocks 1%.

Turkish bank stocks fell over 2% after ratings agency Moody’s slashed its ratings on 17 Turkish lenders, voicing caution about the rising cost of their foreign currency funding.

Emerging currencies came in for a pounding as the dollar index strengthened 0.25% in the wake of a US jobless report that pointed to further tightening in labour market conditions.

This cemented expectations the US Federal Reserve will raise benchmark US rates next week and twice again later in the year.

South Africa‘s rand plunged 1.5% to its lowest since mid-December, and was down over 4% for the week. The yield for the benchmark 2026 government bond rose 18.5 basis points to 9.015%.

The Turkish lira also fell 1.1% after gaining 1.5% in the previous session when the central bank raised rates by 125 basis points (bps) to 17.75%, cheering markets. The currency was set to end the week up 2.6%.

“The increase was more than markets expected and another strong step to support the currency and safeguard price stability,” Muhammet Mercan, ING’s chief economist for Turkey, said in a note.

Mexico’s peso weakened 0.6% on worries about NAFTA negotiations, and was down around 3.3% for the week.

But the Brazilian real was 0.1% firmer, edging off a more than two-year low hit on Thursday amid concerns over the country’s fiscal outlook and uncertainty surrounding October’s wide-open presidential election. It looked set to end the week down around 3.6%.

Overnight, Argentina clinched a three-year $50 billion financing deal with the International Monetary Fund to provide a safety net. The average yield spread paid by Argentine sovereign dollar bonds over US Treasuries on the JPMorgan EMBI Global index narrowed by 2 basis points (bps) to 476 bps.

Stuart Culverhouse, chief economist and head of fixed income research at Exotix Capital, said the size of the deal was at the upper end of market expectations.

“The agreement shows there is lot of international support to make Macri’s Argentina work, and it should ease financing and political concerns this year. But delivering the fiscal adjustment and lower inflation next year, an election year, could still prove challenging,” he said.