Global stock markets were down heavily this week, as our exclusive Accumulator data table shows. All major stock markets lost money over the five days to yesterday bar the S&P 500, whose modest gain for UK investors was down solely to the dollar’s rally.
Losses in emerging markets were the heaviest, with stocks across domestic economies falling 4.2% in pound terms.
Hong Kong’s Hang Seng was down 4.1%, Brazil fell 3.3%, China’s Shangahi Composite tumbled 3.1% and Asia Pacific stocks lost 3%.
While Turkey’s currency and stock market crash had only a limited direct impact on emerging markets, with the country representing less than 1% of the index, the impact on sentiment was more profound.
The Turkish lira’s collapse sparked a flight to the perceived safe haven currencies of the dollar and the Japanese yen – among the few assets to make gains in our table.
And it took down with it other perceived risky currencies, like Argentina’s peso and South Africa’s rand.
The dollar’s continued rally – now up 4% against the pound in the last month alone – has piled further pressure on emerging markets, which officially entered bear market territory this week.
The strength of the greenback has also had a punishing impact on commodities, which are priced in the currency. Oil has recovered some of those losses, down just 0.8%, but silver lost 4.1% and gold fell 2%. Base metals like copper and aluminium were harder hit.
Gold’s fall is a good pointer to the source of this week’s market stress. The precious metal normally thrives in times of investor panic, but not this week, when it was the dollar’s rally sparking the sell-off.
‘Gold’s accelerating slide may seem all the more surprising, since it is seen by some as a haven in times of strife and could therefore be a possible beneficiary of wider concerns over Turkey’s woes and their possible impact upon emerging and financial markets more generally,’ said Russ Mould, investment director at AJ Bell.
‘However, one powerful force is working against gold and that is the dollar. Like most raw materials gold is priced in dollars, so if the greenback goes up then the precious metal becomes more expensive to buy in local-currency terms, potentially dampening demand.’
But while good was shunned, other typically defensive assets held up. Bonds mostly delivered positive returns, although not by enough to lift most mixed asset portfolios, as our table shows.
Asset flow data compiled by Bank of America Merrill Lynch shows investors responded to this week’s slump my moving some of their assets into cash, pulling $3.6 billion (£2.8 billion) from equities and $2.3 billion from bonds.
And within the stock market, they moved into more defensive areas. Investors pulled the most money from technology stocks since February’s sell-off, while financials also suffered big outflows. Defensive sectors like healthcare attracted big inflows.
You can access the Accumulator data table here.