Disappointing China factory data clobbered emerging market assets on Friday with stocks on track for their steepest weekly loss in more than two years and currencies diving further as domestic woes added to a bleak global backdrop.
Data from the world’s second largest economy showed its factory sector shrank at the fastest pace in almost 6-1/2 years, heightening fears in markets around the globe over China’s economic health.
Mainland Chinese stocks ended more than 4 percent down, chalking up losses of more than 11 percent on the week – its weakest performance since mid-June when it fell more than 13 percent in a week, while MSCI’s broadest emerging market share index fell 1.6 percent, heading for a weekly fall of more than 5 percent.
The sell-off gripped bourses around the globe, with stock markets in India, Turkey and South Africa deeply in the red.
“Emerging markets are going to continue to be somewhat disappointed by the implications for Chinese growth … and I don’t have a great deal of comfort to offer there,” said Michael Kurtz, Global Head of Equity Strategy at Nomura.
“If the PMI number is telling us that Chinese growth for the time being is under some suspicion, the EM asset class, and particular those EMs that more in the commodity, energy and resource producing spaces … are going to continue to struggle.”
Many currencies had a similarly grim day, taking no comfort from the dollar index slipping to a seven week low. Asian currencies fell across the board: Malaysia’s ringgit hit a new 17-year low on concerns over how much ammunition the central bank has to defend the embattled currency, while South Korea’s won dropped following an exchange of fire with North Korea on Thursday.
Oil prices continued to tumble, heading for their eighth consecutive week of falls, the longest losing streak in almost three decades, hammering Russia’s rouble, which hit a six month low and was poised for its ninth straight week of losses.
The Turkish lira continued to melt after briefly hitting a new record low on Thursday as political uncertainty lingered. Prime Minister Ahmet Davutoglu made a last-ditch call for political parties to agree a working government on Thursday. Policymakers have to form a working government by Sunday or else President Tayyip Erdogan has to call a snap election.
South Africa’s rand also slipped, on track for its second week in the red.