London: Emerging market currencies and stocks have slid as investors piled into safe-haven assets after an Apple revenue warning fuelled fears about slowing global growth and sparked a sharp drop in risk sentiment.
Technology stocks in emerging markets bore the brunt of the weakness. A 1.3 per cent slide in the sector index left them on target for their lowest close in over two months.
Against the safe-haven yen, the Turkish lira tumbled as much as about 9.2 per cent overnight as Japanese retail investors liquidated positions. A move of similar magnitude was last seen in August last year when Turkey was engulfed by a currency crisis.
While the lira regained a chunk of the ground it lost against the yen and dollar, it remained weak. Data showed inflation had eased for the second straight month and came in lower-than-expected at just over 20 per cent in December. (Turkey’s lira, which ended 2018 more than 28 per cent lower, softened about 0.8 per cent on Thursday.)
“The Turkish lira was the main victim of escalating risk aversion caused by Apple,” Rabobank EM FX Strategist Piotr Matys, said. “We are concerned that the price action in dollar-lira implies that an important bottom may have been made in November and December and that the pair may gain a much better upside traction in Q1.”
Commodity giant South Africa’s rand weakened 0.2 per cent against the greenback. It had dropped against the yen, seeing its lowest level against the Japanese currency in nearly half a year, at one point.
MSCI’s index of emerging market currencies dipped 0.3 per cent, not helped by a soft dollar, while developing world stocks dropped half a per cent, as shares in South Korea and Taiwan slid.
Koon Chow, emerging markets strategist at UBP, said the falls that many emerging market currencies suffered in 2018 had already pre-empted a more difficult macro backdrop. Nonetheless more moves could be in store for currencies such as the lira, which had traded fairly steadily in the last two months of the year.
“There needs to be a repricing lower of some of these more vulnerable currencies,” said Chow. “These dislocations demonstrate the impact of unwinding quantitative easing on market structures and it means that the truly more vulnerable markets out there need to watch their back, so to speak.”
The declines spread all over the place
* US equity index futures slumped alongside stocks in Europe after Apple cut its sales outlook. Contracts on the Nasdaq index led the drop for US futures, dipping as much as 2.9 per cent. Apple was down 8.9 per cent in pre-market trading. Technology shares led the Stoxx Europe 600 Index lower while equities in Asia also declined.
* The remarkable thing about recent yen performance may not be its almost 4 per cent surge against the dollar on Thursday, but the fact the currency just clocked its best month in about two years. That exact statistic also applies to gold, which in December notched the largest jump since January 2017. Both assets have continued to climb this year.
* Bonds of G-7 governments had their best December in a decade, according to a Bank of America Merrill Lynch index. Put simply, traditional havens are back.