A rout in emerging financial markets spread across the globe yesterday, with Britain’s FTSE 100 slipping into a correction.
Stocks tumbled around the world and demand for investments seen as safe havens spiked on intensifying concern that global growth is slowing. Kazakhstan became the latest country to stop defending its currency, as developing nations struggle to overcome plunging prices for commodity exports and China’s shock devaluation of the Yuan last week.
The selloff spread to US equities, wiping out the gains that the Standard & Poor’s 500 Index had made so far this year. Media stocks, including Netflix, the S&P’s best performer in 2015 to date, were among the equities to be heavily hit in early trading on Wall Street.
Investor anxiety over emerging markets is increasing as the Federal Reserve considers the timing of higher interest rates.
Slower global economic growth may cause the central bank to delay a move, as minutes released yesterday showed officials are concerned about stubbornly low inflation caused in part by the fall in commodity prices. The price of oil in New York is trading close to its lowest level in six years.
“There are so many more concerns than hopes,” said Larry Peruzzi, director of international trading at Cabrera Capital Markets in Boston.
In Frankfurt, German stocks fell for the fifth consecutive day, while the FTSE 100 in London has now fallen for eight successive sessions, its worst losing streak since 2011.
With the value of the blue-chip index now more than 10 per cent below the all-time high reached in April, it is now officially in correction territory. The Iseq index in Dublin fell 2.15 per cent in tandem with declines across Europe.
In a note, Bank of Ireland Global Markets head of long-term interest rate trading Garret Grogan said the fallout from China’s move would continue in the weeks ahead, but that Ireland may ultimately benefit.
“It cannot be ruled out that the ripples from China could have some potential positive impacts for the export-led Irish economy,” Mr Grogan wrote.
This is in part because a lower inflation outlook as a result of the Yuan’s devaluation might encourage the European Central Bank to fulfil or even increase its quantitative easing programme, with the resulting pressure on the euro exchange rate “good for an export-driven open economy like Ireland”.
The MSCI Emerging Markets Index slid 1.3 per cent, heading for the lowest close since 2009. On currency markets, Turkey’s lira briefly slid past 3 against the dollar for the first time ever and South Africa’s rand breached 13 per dollar, a level not seen since 2001. Russia’s ruble dropped to the weakest since February and Malaysia’s ringgit slid to a 17-year low.
Kazakhstan’s shift to a free-floating currency comes a day after letting the tenge slide 4.5 per cent against the dollar, the most since a devaluation 18 months ago. Vietnam devalued its currency on Wednesday.
Gold for immediate delivery climbed 1.4 per cent to $1,149.85 an ounce, the highest in a month. Bullion has rallied more than 7 per cent from a five-year low in July amid currency devaluations and fears for the global economy.
(Additional reporting: Bloomberg)
