London - Share prices in emerging markets dropped on Wednesday and the Mexican peso hit new four-week lows on signs of an increasingly tight US presidential race, though South Africa's rand bucked the trend with a 1 percent jump.
Broadly markets are having to rethink bets on a win for the Democrat Hillary Clinton as the latest polls suggested that Republican Donald Trump might be closing in on his rival's lead.
Following Wall Street's tumble on Monday, MSCI's international EM share price index touched three-week lows , driven by losses of 1.0-1.5 percent across Asian markets .
The Mexican peso, a rough barometer of how Trump is faring in the polls, extended losses by 1.2 percent after the previous day's 1.7 percent fall, its biggest in nearly two months.
“It's difficult to predict what Trump will do as president. In the absence of a clear view, the normal reaction is to hedge one's position by reducing risk exposure,” said Cristian Maggio, head of emerging markets strategy at TD Securities.
He predicted more volatility for the Mexican peso, already among this year's worst currency performers.
“[Trump] is using very anti-Mexican rhetoric - from an immigration standpoint, and a (trade) standpoint, Mexico has a lot to lose if Trump goes ahead with those plans,” Maggio added.
Most other emerging currencies retreated against the dollar, hit also by uncertainty over what message the US Federal Reserve will deliver after its policy meeting ends later on Wednesday. It is not expected to make changes but could confirm market expectations of a December move.
Domestic politics also weighed on many emerging market asset prices, with the Korean won hitting near four-month lows in the wake of a scandal that threatens to engulf President Park Geun-Hye.
However, the South African rand reversed earlier losses to trade at new five-month highs against the dollar after President Jacob Zuma withdrew a court challenge to the release of a report by the Public Protector anti-corruption investigator on allegations that his wealthy friends had undue influence in the government.
Thousands of people marched in Pretoria earlier against the president, demanding his resignation.
Benchmark bond yields fell 11 basis points to one-month lows after the development, which analysts said showed South Africa retained its strong institutions.
“The release of the report could provide further upside, not least as an indication of high institutional independence and strong governance in South Africa. As a result, we are seeing the rand falling to below 13.5 per dollar and a better bid for bonds,” MUFG Securities wrote.
Meanwhile in Europe the Polish zloty fell almost half a percent and the stock market tumbled 1.5 percent after purchasing managers data showed national economic output declined to two-year lows last month, standing barely above the 50 mark that separates growth from contraction.
The Turkish lira fell around 0.2 percent, nearing recent record lows after data showed a much wider trade deficit in October as exports fell. Turkey is seen as one of the more vulnerable emerging economies due to its reliance on external funding and fragile politics.
“The lira is under pressure anyway from multiple developments, and this is an additional lira negative,” Commerzbank analysts told clients.
REUTERS