LONDON, Aug 16 (Reuters) - Emerging-market equities languished in bear territory on Thursday, shrugging off the prospect of new trade talks between China and the United States, while Turkey's lira extended its rally.
MSCI's benchmark emerging-markets stocks index is down around 20.7 percent from its peak in January, dogged by tit-for-tat tariffs between China and the United States and by political and economic strains in countries such as Turkey and Argentina.
The index fell 0.2 percent on Thursday, set for its sixth day loss in a row - its longest losing streak in six months. A weak session in Asia set the tone, with Chinese stocks falling 0.4 percent to their lowest since September 2016.
Hong Kong shares fell 0.8 percent, with Tencent losing 3 percent. The social media and gaming company reported quarterly profit that fell for the first time in nearly 13 years and said it did not know when it would get Chinese approval for its most popular game.
Per Hammarlund, chief emerging markets strategist at SEB, said the news that China and the United States would hold another round of trade talks later in August was not enough to lift the mood.
"This trend we have seen since January is continuing - growth is slowing down, you have worries about the sustainability of debt in emerging market economies and that is dampening risk appetite," he said.
China's yuan found some support, however, after reports the central bank had restricted commercial banks from using interbank accounts to deposit or lend yuan offshore through free trade zone schemes.
The offshore yuan gained 0.8 percent while the onshore yuan rose 0.6 percent, up from a 15-month low. It earlier approached 7 per dollar, considered a key threshold .
Turkey's lira also extended its rally, up 2.6 percent as central bank measures squeeze liquidity, while Qatar has pledged some $15 billion to support Turkey's banks and financial system.
Turkish five-year credit default swaps continued to fall, down 21 basis points (bps) from Wednesday's close to 494 bps. Sovereign dollar-denominated bonds rose across the curve.
But Turkish stocks fell 1 percent as Turkey's diplomatic and trade row with Washington showed no sign of easing. The White House has ruled out removing steel tariffs even if Ankara frees a U.S. pastor detained by Turkey on terrorism charges.
Investors are awaiting a conference call with Finance Minister Berat Albayrak later today.
Hammarlund said he expected a "carefully orchestrated" speech to assure investors Turkey could ride out the storm. "Nevertheless, I suspect this rebound in the lira will be temporary," he said.
"The underlying causes for the weakness are still there the external financing need is still very big and the U.S. looks set to continue hiking rates. And then you have (President Tayyip) Erdogan, and his resistance to hiking rates and to allow the central bank the independence it needs."
The South African rand also recovered, gaining 0.6 percent after sliding over 2 percent the day before on concerns over a weak economic outlook
The sell-off was triggered by a Moody's warning that the pace of fiscal consolidation had slowed. Because Moody's is the only one of the big three ratings agencies to give South African sovereign an investment-grade rating, any hint it might lower that rating unsettles markets.
MSCI's Emerging Currency index was trading just off a 13-month low hit in the previous session, but some currencies continued to slide.
India's rupee dropped 0.6 percent to another record low as worries about a widening trade deficit continued to weigh on the currency.
The Argentine peso also hit a record low on Wednesday, pressured by inflation concern. The central bank sold $781 million in reserves in a bid to stop the slide .
"A strong dollar and rate hikes in the U.S. make life very difficult for emerging markets," said Rory McPherson, investment director at Psigma Investment Management. For GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see http://tmsnrt.rs/2dZbdP5
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Equities Latest Net Chg % Chg % Chg
Emrg Mkt Indx 1021.20 -2.23 -0.22 -11.85 Czech Rep 1065.65 -2.80 -0.26 -1.16 Poland 2254.03 -18.70 -0.82 -8.42 Hungary 36170.66 +344.52 +0.96 -8.14 Romania 8077.99 -6.05 -0.07 +4.18 Greece 721.57 +1.25 +0.17 -10.07 Russia 1069.85 +14.61 +1.38 -7.33 South Africa 50143.37 +528.31 +1.06 -4.55 Turkey 89764.51 -498.44 -0.55 -22.17 China 2705.97 -17.29 -0.63 -18.18 India 37714.46 -137.54 -0.36 +10.74 Currencies Latest Prev Local Local close currency currency
% change % change
Czech Rep 25.72 25.76 +0.16 -0.75
Poland 4.31 4.32 +0.24 -3.11
Hungary 323.72 324.27 +0.17 -4.07
Romania 4.66 4.66 +0.15 +0.45
Serbia 117.84 117.87 +0.03 +0.48
Russia 66.78 67.26 +0.73 -13.66
Kazakhstan 360.42 361.67 +0.35 -7.66
Ukraine 27.66 27.48 -0.65 +1.75
South Africa 14.48 14.56 +0.56 -14.63
Kenya 100.70 100.70 +0.00 +2.38
Israel 3.68 3.68 +0.07 -5.45
Turkey 5.81 5.97 +2.67 -34.79
China 6.89 6.93 +0.61 -5.58
India 70.34 69.92 -0.60 -9.25
Brazil 3.90 3.91 +0.07 -15.13
Mexico 19.07 19.13 +0.35 +3.05
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 392 -2 .09 7 66.38 1
(Reporting by Claire Milhench; additional reporting by Helen Reid; editing by Larry King)