EM assets slump as investors flee risk; Mexican peso leads Latam FX lower as carry trades unwind
Updates prices at 1530 GMT
MSCI EM stocks down over 4% amid global selloff
Peso, rand, and other high-yielding currencies slump
Prices of emerging markets bonds slip
Bradesco jumps after results
By Lisa Pauline Mattackal
Aug 5 (Reuters) -Indexes tracking emerging market assets tumbled to multi-month lows on Monday, while high yielding currencies slumped against the dollar as U.S. recession worries sent investors piling into safe-haven assets, such as the Japanese yen.
The yen JPY=EBS leapt to a seven-month high against the dollar as crowded carry trades unwound, pressuring emerging market currencies that have benefited from the strategy where investors borrow in currencies of countries with lower rates and invest in assets offering higher returns.
Mexico's peso MXN= lost 1.1% against the U.S. currency, breaching the 20 pesos per dollar barrier and touching its lowest since 2022.
"The likes of MXN/JPY were the darlings of the carry trade for at least two years, and those days are over," said Patrick Reid, co-founder of FX consultancy The Adamis Principle.
On the equity front, MSCI's index of global emerging market stocks .MSCIEF plunged 4.2% to its lowest since April, as a stock rout that began in early Asia trade made its way through regional bourses.
An index of Latin American equities .MILA00000PUS tumbled 1.7% to its lowest since 2023. Stock markets in Argentina, .MERV Colombia .COLCAP, Chile .SPIPSA and Brazil .BVSP dropped between 1% and 2.7%.
The risk-off mood continued from Friday, when weaker-than-expected U.S. jobs report triggered worries of recession in the world's largest economy. This compounded concerns for emerging markets over worries in China, poor tech sector earnings, and escalating geopolitical tensions in the Middle East.
"The drivers of today remain the same as Friday – worries about the escalation risks in Middle East, fears of a global recession from policy mistakes linked to Bank of Japan hikes, (the Fed) being behind (the) curve for jobs," Bob Savage, head of market strategy and insights at BNY Mellon wrote in a note.
South Africa's rand ZAR= and the Egyptian pound EGP= slumped more than 1% against the dollar, while the Colombian peso COP= dropped nearly 1% to its lowest since October.
Brazil's real BRL= fell to its lowest since 2021, while an index of Latin American currencies .MILA00000CUS dropped to its lowest since June 2023.
Emerging market bonds also lost ground as U.S. Treasury yields slipped, with longer-dated bonds in Argentina 040114HW3=1M, Nigeria 65412JAA1= and Egypt EG195305749= down over 2 cents on the dollar.
Traders are now pricing in a 50-basis-point interest rate cut at the Federal Reserve's September meeting, compared to a 25 bps broadly expected last week as per CME's FedWatch.
Turkey's BIST-100 index .XU100 was set for its worst day since October after trading was halted twice following heavy losses, with the lira TRYTOM=D3 hitting a record low against the dollar.
On a more upbeat note, shares of Brazil's Bradesco BBDC4.SA jumped 5.6%, bucking broader declines on the Bovespa index after the financial services company reported better than expected net income.
HIGHLIGHTS
** Brazil's Petrobras confirms gas discovery in Colombia
** PREVIEW- South African banks' earnings in spotlight ahead of first rate cuts
** Protests in Nigeria over the soaring cost of living ebb after deadly crackdown
** Indian rupee is worst Asian currency in U-turn as yuan carry trades unwind
Key Latin American stock indexes and currencies
Latest | Daily % change | |
MSCI Emerging Markets .MSCIEF | 1016.67 | -4.2 |
MSCI LatAm .MILA00000PUS | 2086.25 | -1.84 |
Brazil Bovespa .BVSP | 124497.42 | -1.08 |
Mexico IPC .MXX | 51984.60 | -0.49 |
Chile IPSA .SPIPSA | 6167.91 | -2.34 |
Argentina MerVal .MERV | 1401643.68 | -2.212 |
Colombia COLCAP .COLCAP | 1281.65 | -2.67 |
Currencies | Latest | Daily % change |
Brazil real BRBY | 5.7499 | -0.70 |
Mexico peso MXN=D2 | 19.4108 | -1.28 |
Chile peso CLP=CL | 953.7 | -0.37 |
Colombia peso COP= | 4176.32 | -1.10 |
Peru sol PEN=PE | 3.747 | -0.85 |
Argentina peso (interbank) ARS=RASL | 935.0000 | -0.16 |
Argentina peso (parallel) ARSB= | 1390 | 0.36 |
Reporting by Lisa Mattackal in Bengaluru; Editing by Tomasz Janowski
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