Emerging-market stocks sank to the lowest level since 2011, extending declines in a bear market, and currencies slid as China’s falling yuan spurred bets developing nations will weaken their currencies to stay competitive.
Investors exiting riskier assets drove stocks from Indonesia to South Africa and Turkey down at least 1.4 percent. Malaysia’s ringgit sank beyond 4 per dollar for the first time since 1998 as currencies in South Korea and Indonesia lost at least 1 percent. Eastern European currencies, regarded as haven investments amid central bank stimulus in the euro area, outperformed peers. Brazil’s real weakened for a second day and the Ibovespa dropped to the lowest level since March.
In addition to diminishing the competitiveness of imports to China from countries including Russia, Brazil and South Africa, the yuan’s second day of weakening has raised the risk that Asian countries will take steps to boost faltering exports. Vietnam widened the dong’s trading band on Wednesday after China lowered the yuan’s daily fixing by 1.6 percent following a 1.9 percent cut on Tuesday.
“China is the most important country globally for trade, as both a manufacturer and a consumer,” Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.2 billion at NN Investment Partners in The Hague, said by phone. “The anticipation is that 3.5 percent is not necessarily the end of depreciation.”
The MSCI Emerging Markets Index decreased 1.9 percent to 861.71, taking the rout from a peak last September to 22 percent. The Indonesian rupiah led declines among currencies, weakening 1.4 percent against the dollar. South Korea’s won fell 1 percent to the lowest level since October 2011.
The Jakarta Composite Index tumbled 3.1 percent to an 18-month low. Indonesian President Joko Widodo picked former central bank Governor Darmin Nasution as the new economy minister in a cabinet shakeup aimed at rejuvenating economic growth.
The FTSE Bursa Malaysia KLCI Index dropped to the lowest level since December 2012 and the ringgit sank 1.3 percent. The weaker yuan further pressured the ringgit, which has already been hurt by a slowing economy and controversy over finances linked to Prime Minister Najib Razak.
“The re-enactment of a currency-war scenario has spooked already fragile sentiments,” said Christopher Wong, a Singapore-based senior investment manager at Aberdeen Asset Management Plc, who would look to buy selectively in “solid companies.”
The real slumped 0.2 percent as the Ibovespa Brazilian stock benchmark dropped 1.4 percent. China is Brazil’s biggest trading partner.
Currencies in Poland, Hungary, the Czech Republic, Bulgaria and Romania strengthened against the dollar and were little changed versus the euro. Hungarian bonds outperformed peers, with the yield on five-year notes falling 10 basis points to 2.68 percent.
The premium investors require to hold emerging-market debt over U.S. Treasuries widened five basis points to 388 basis points, the most since March, according to JPMorgan Chase & Co. indexes.