HONG KONG (AFP, REUTERS) - Stocks in Asia tumbled on Wednesday (Sept 5) and some currencies weakened as fears of contagion from Argentina and other emerging markets buffeted the region, adding to the uncertainty stoked by Donald Trump's trade rows with China and Canada.
Suspected central bank intervention put a floor under the Indonesian rupiah and the Indian rupee.
After Turkey and Argentina's recent headline-making problems, South Africa became the latest country to spark panic Tuesday with data showing a shock plunge into recession for the one-time economic starlet.
The news sent the rand plunging in a similar way to the Argentine peso and Turkish lira in recent weeks. Observers increasingly fear the problems could spread to other emerging market (EM) countries and possibly spill over into major economies.
"South Africa is back in recession and that was not expected," said Greg McKenna, chief market strategist at AxiTrader.
"The big question is whether this is a... tipping point for EM markets and if the idiosyncratic issues are now adding up to something more structurally pernicious for EM markets. My guess? Yes, it is."
The brewing crisis has seen currencies in a number of emerging markets - mostly with deep current account deficits - take a hammering. But adding to selling pressure on the EM currencies is the US economy's continuing strength, which is forcing the Federal Reserve to raise interest rates. This leads investors to seek better and safer returns in the US.
India's rupee was sitting at a record low and the Indonesian rupiah at levels last seen during the 1998 Asian financial crisis.
The rupee fell 0.49 per cent to the US dollar. The Reserve Bank of India likely sold dollars at 71.80 rupees in the local spot forex market to stem the sharp fall, two traders told Reuters. Indonesia said it would take unspecified action against currency speculators and announced plans to delay import-heavy energy projects in order to focus efforts on reducing imports and supporting the rupiah.
TRADE IN FOCUS
Data showing an index of manufacturing activity hitting a 14-year high bolstered expectations the Fed will continue to increase borrowing costs. Crucial US jobs data is due out on Friday.
The EM fright is also hitting equities, with investors already on edge as a deadline approaches on Thursday for the conclusion of a public consultation on Trump's proposal to impose tariffs on US$200 billion of Chinese imports, on top of the US$50 billion already being hit.
While the two sides have held low-level talks there are fears the measures will be implemented, which would spark a retaliation from Beijing and push the world's top two economies closer to an all-out trade war.
The Hang Seng Index dropped 2.61 per cent, or 729.49 points, to close at 27,243.85 while the Shanghai Composite Index closed down 1.7 per cent, as foreign investors dumped 3.1 billion yuan of mainland stocks via exchange links, the most since June 25.
Tokyo ended 0.5 per cent lower, with the closure of Kansai airport, a key cargo hub particularly for electronic parts, following a strong typhoon acting as a drag on several stocks.
Singapore gave up 1.7 per cent and Seoul dropped one per cent. Sydney also fell one per cent despite news that the Australian economy expanded far more than expected in the second quarter thanks to a pick-up in exports and consumer spending.
Jakarta led a sell-off in EM equities, diving 3.8 per cent, while Manila and Bangkok lost 1.6 per cent lower.
"There seems to be no sign of halting the downtrend" for emerging-market assets, said Koji Fukaya, chief executive officer at FPG Securities in Tokyo. "Investors have become more selective and countries with negative news such as weak economic growth, weak external balances and high inflation face stronger sell-offs."
Eyes are also on the resumption of talks on Wednesday between the US and Canada aimed at reviewing NAFTA.
Optimism sparked by Mexico's deal last week with Washington was soon tempered by the failure to close a deal between the US and Canada, with Trump threatening to leave Ottawa out of the pact altogether.
Canadian Prime Minister Justin Trudeau stressed that no deal is better than a bad deal for his country.