Disappointing Chinese data weighs on emerging markets stocks

Most courses in emerging markets fell on Wednesday to start 2019 on the back-foot, as lacklustre factory data out of China fed worries about slowing global economic growth while developing world currencies marked time against a softer dollar. Factory activity in the world's second-biggest economy shrank for the first time in over two years in December, testifying to the toll the U.S.-China trade war has exacted. A soft dollar provided some leeway for emerging market currencies with cautious sentiment prevailing amid the partial U.S. government shutdown and a slower pace of Federal Reserve rate hikes.

"It looks like the weak Chinese PMI data is reinforcing concerns of a slowing Chinese economy and that is weighing heavily on stock markets," said Jason Tuvey, a senior EM economist with Capital Economics in London. MSCI's index of developing world stocks dropped 1.6 per cent, set to clock its biggest one-day percentage loss in more than three weeks. China's blue-chip CSI300 index fell 1.4 per cent while bourses in export-oriented South Korea and Taiwan each recorded losses of more than 1.5 per cent.

"We feel that the slowdown in China will feed through, that weaker growth in China will lead to weaker growth in Asia and other countries that are dependent on trade with China ... we are likely to get a slowdown across the EM world," said Capital Economics' Tuvey Russia's rouble edged higher, weathering a 1.5 per cent slide in the price of key export oil. Its oil production rose to a post-Soviet record high of 11.16 million barrels per day in 2018, data showed on Wednesday.

Resources major South Africa saw its rand soften 0.4 per cent, while the Johannesburg Stock Exchange's Top-40 index tumbled 3.5 per cent, on track for its worst session in about four and a half months. Turkey's lira, the focal point of a crisis in 2018, was 1.1 per cent weaker on Wednesday. A business survey showed manufacturing activity contracted for the ninth straight month in December, as output and new orders continued to decline.

Data showing German manufacturing growth slowed in December hurt sentiment towards central and eastern Europe - regions generally dependent on Germany as an export destination. The Czech crown, Polish zloty and Hungary's forint all softened against the euro, falling in a range between 0.09 per cent and 0.3 per cent. The forint weakened to slip away from the 200-day moving average of about 321 against the euro, despite data showing the seasonally-adjusted Purchasing Managers' Index in Hungary rose in December from November. Hungarian stocks dipped 0.4 per cent. Polish stocks were trading down 1.3 per cent lower on broad-based losses, on pace for their lowest closing level in over three weeks.

(With inputs from agencies.)