Emerging Markets Face Reality Check Amid Turkey, Argentina Woes

LAGOS (Capital Markets in Africa) – The rally in emerging markets waned as concern over a confidence crisis in places such as Turkey and Argentina reminded investors of the fragile landscape for the developing world.

The lira led global losses as a central bank move on overnight borrowing limits failed to bolster investor sentiment. Argentine bonds slumped as the nation asked the International Monetary Fund to speed up payments, underscoring the need to reassure markets that it has enough money to fund itself through 2019 amid its second recession in two years. Elsewhere, the South African rand tumbled as the policy risks that helped spark the currency’s worst monthly selloff this year show no sign of abating.

Traders pushed down the value of emerging-market assets this month amid a turmoil that included everything from a rising U.S. dollar to the end of an era of easy money, prospects of a global trade war, American sanctions and regional crisis. Many analysts say that the developing world has mostly done its homework over the past decade and central banks are more resilient. While there’s no indication of a bigger blowup that will sharply curb global growth, investors are taking a more cautious approach.

“Coupled with sustained global trade tensions, this environment magnifies shocks and highlights the importance of a selective approach to the asset class,” said Stephane Monier, chief investment officer at Lombard Odier. “Emerging markets are indeed vulnerable with the U.S. in a tightening phase, but investors are now more willing to reward the strongest and punish the fragile. This summer’s crisis in Turkey has made that amply clear.”

Source: Bloomberg Business News