September 30, 2019 / 9:48 AM / 20 days ago

EMERGING MARKETS-Stocks, FX eye worst quarter in 2019 as trade tensions linger

* China stocks near 1-month lows, yuan weakens too

* EM FX set for biggest quarterly decline since June 2018

* Turkish lira outperforms as economic outlook revised

By Sruthi Shankar

Sept 30 (Reuters) - Emerging market stocks and currencies were set for their biggest quarterly declines of 2019 on Monday, with renewed concerns on the U.S.-China trade front driving Shanghai shares to their lowest in nearly a month.

China’s equities benchmark and blue-chip index closed down about 1% after reports the Trump administration was considering delisting Chinese companies from U.S. stock exchanges in what could be a radical escalation in their prolonged trade dispute.

The news came ahead of the 70th anniversary of the birth of the People’s Republic, with local markets closed for a week starting Oct. 1. Washington and Beijing officials are due to hold negotiations next week.

The yuan had been in the red before gaining slightly after a private survey out of China pointed to a slightly better-than-expected manufacturing activity in September.

Concerns about the fallout of a bruising U.S.-China trade war and signs of slowing global growth have all taken a toll on risk sentiment in the last three months, putting the MSCI’s index of developing world stocks on course for its biggest quarterly fall since December 2018.

Meanwhile, its currencies counterpart was on track for its worst quarterly showing since June 2018, with the Argentine peso, the Brazilian real, the Colombian peso and South Africa’ rand among the worst performers.

The Thai baht and the Turkish lira were among the best performers, with the latter set for its best three months since December 2018.

“Given that we do not anticipate a major breakthrough in the U.S.-China trade conflict and investors will have to navigate through idiosyncratic risks across the EM space, we are sceptical that Q4 will be markedly better for the EM currencies than Q3,” Rabobank analysts wrote in a client note.

“Amongst the worst performers are high yielders (BRL, ZAR) supporting our view that the revival of carry trade is unlikely – despite the Fed cutting rates – as long as trade uncertainty exists.”

The lira outperformed its peers on the day with a 0.4% gain after data showed the trade deficit rose to $2.50 billion in August, although it was below the $3.19 billion recorded the previous month. Foreign visitor arrivals also surged 17.2% in the same period. Turkish Finance Minister Berat Albayrak predicted a relatively quick rebound from recession, saying the domestic economy is expected to grow 0.5% in 2019 and 5% in 2020, revising last year’s forecast of 2.3% growth for this year and 3.5% in the next.

Turkish banking stocks came off one-and-a-half-year highs hit in the previous session, while the broader BIST 100 jumped 0.5%, on track for its biggest quarterly gain since December 2017.

Russia’s rouble and the MOEX edged lower after a fall in oil prices, its top export, and were set for slight quarterly declines.

With the dollar gaining against the euro, emerging European currencies made slight gains.

The Polish zloty was up 0.2%. The currency and Warsaw shares have taken a beating this year on expectations of a possible ruling against Polish banks that could wipe out profits for years.

Europe’s highest court will rule this week whether a bank in Poland broke the law by selling homeowners a Swiss franc mortgage, potentially unleashing lawsuits.

For GRAPHIC on emerging market FX performance 2019, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2019, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Sruthi Shankar in Bengaluru; Editing by Kirsten Donovan)

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