Emerging assets retreat as Brexit, Trump spur flight to safety

Dubai - Investors sold assets across emerging nations after a report saying the UK may leave the European Union’s single market raised uncertainty over Britain’s trade deals and economy.

President-elect Donald Trump said other members would also quit the bloc, adding to concern that global growth may stumble.

The MSCI Emerging Markets Index dropped the most in more than three weeks. The Shanghai Stock Exchange Composite Index sank to the lowest level since October and the Hang Seng China Enterprises Index of mainland companies traded in Hong Kong retreated 1.7%, the most since December 22. Turkey’s lira, the world’s worst performer this year, was the biggest drag on an index of emerging currencies.

Currencies

MSCI Emerging-Market Currency Index retreated 0.1%. The lira weakened 1.2%, the most among developing currencies. South Korea’s won dropped 0.6% to 1 182.30 per dollar. Prosecutors are seeking a warrant to arrest Samsung Group’s Jay Y. Lee for allegations including bribery and embezzlement.

Stocks

MSCI’s gauge of developing-nation stocks fell 0.7%. The MSCI EM Asia Index decreased 0.8%. Kuwait’s SE Price Index rose for a ninth day, the longest winning streak since September 2014. The gauge added 0.5%, bringing its nine-day advance to 8.3%.

Analysis

The won may strengthen toward 1 170 per dollar in the near-term if foreign inflows return, although domestic political issues and economic uncertainty will cap gains, said Khoon Goh, the Singapore-based head of Asia research at Australia & New Zealand Banking.

Goldman Sachs Group is overweight local rates in Poland, where weak inflation will likely allow for monetary easing, and is underweight Turkish local rates due to “geopolitical uncertainty and challenging macro dynamics.”

A China Securities Journal article, written by the Chinese Academy of Social Sciences researcher Xiao Lisheng, said that China should allow the yuan to float freely and stop intervening in the forex market.

What to watch

Russia to release trade balance for November.  Poland will announce inflation for December. For data and events, see Asia Daybook, India Daybook, Taiwan Daybook, Middle East Daybook, Russia Daybook, Africa Daybook, South Africa Daybook.

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