China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | Currencies

Nomura rounds up markets’ biggest misses in 2016

Posted on 30 November 2016 by

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016.

The biggest miss among analysts, according to Nomura’s Sam Bonney, was overestimating US growth and inflation prospects. The consensus in January was for economic growth of 2.5 per cent and average inflation of 1.8 per cent, in contrast with actual growth of around 1.5 per cent and inflation at 1.3 per cent.

The Fed was expected to raise interest rates three times by the end of the year, while we’re still waiting for a first bump up of the year next month.

That caution was encouraged in part by the most obvious failure on the part of markets this year: as Nomura delicately put it, “political events didn’t unfold in the way analysts thought”. June’s Brexit vote and Donald Trump’s presidential election victory both shook markets, with the pound and Mexican peso respectively 17 and 24 per cent weaker than forecast at the start of the year.

On the flip side, China “didn’t implode”, and Brazil was more stable than expected. Investors’ forecasts for smaller G10 economies were also off, with Australia, New Zealand and Sweden performing better than expected (except Sweden’s currency) and Norway and Canada both disappointing.

After all those misses, Nomura considered a 20 per cent revision to oil price forecasts relatively successful. Brent crude has remained close to the $46 forecast at the end of February, if not the $57 expected at the start of the year.

An accurate dollar forecast also comes with a caveat: while predictions were “almost spot on”, it wasn’t necessarily for the right reasons, driven by the weakness of sterling and a late post-Trump surge (which, as discussed, investors weren’t entirely expecting).

If, after that, you still have any faith in the market’s forecasts (or just want to know what to avoid), Nomura says the current consensus for next year sees faster growth in the US, weakness in emerging markets and outperformance from the Scandinavian currencies. Most ominously, they also appear to think major political risks are “behind us”. Luckily there are no major political events coming up…

Euro suffers worst month against the pound since financial crisis

Posted on 30 November 2016 by

Political risks are still all the rage in the currency markets.

The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box.

The single currency has shed 4.5 per cent against sterling this month, with the tables turning on the euro after it had strengthened sharply against the pound in the wake of the Brexit vote in June.

Eurozone investors have been spooked by the prospect of reformist Italian prime minister Matteo Renzi resigning from office should he lose a key vote on constitutional reforms on Sunday. Polls indicate Mr Renzi’s ‘Yes’ side will lose out, sparking his resignation and throwing into turmoil crucial plans to clean up the banking system in the eurozone’s third largest economy.

The euro has also shed 5.5 per cent against the dollar since Donald Trump’s election this month, and is trading at $1.0648 at publication time.

This Sunday also marks a re-run of Austria’s presidential election, where the independent, pro-European Alex Van der Bellen is facing eurosceptic, right-wing candidate Norbert Hofer. Polls show the result is too close to call, but a victory for Mr Hofer would mark the first major triumph for an anti-EU candidate in Europe following Mr Trump’s election.

“[Mr Hofer] has repeated his EU criticism saying the EU is in a deep crisis and he would push for an ‘Öxit’ if national parliaments are deprived of power by a more centrally organized EU or if Turkey becomes a member of the EU”, says Heiko Peters at Deutsche Bank.

The prospect of France’s presidential elections are also weighing on the euro, with the race set to be fought out between a ring-wing former prime minister and the far-right, nationalist Marine Le Pen.

“Whatever the final result, chances are Ms Le Pen will have the most votes after a first round in which the main candidates on both the left and right wings are diluted by outliers” said Kit Juckes at Societe Generale.

“I can’t see how the euro stages more than short-covering bounces before then”.

Charts courtesy of Bloomberg

China capital curbs reflect buyer’s remorse over market reforms

Posted on 30 November 2016 by

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar.

In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency by the International Monetary Fund. Some people familiar with Mr Zhou’s sales pitch described it as a “Trojan horse” strategy because it wrapped difficult reforms in an alluring package. 

The State Council, China’s cabinet, now appears to have buyer’s remorse over its new gift horse. In recent days, draft proposals to tighten investment outflows from China have been widely leaked. 

This has led executives, bankers and lawyers to fear that many of the overseas mergers and acquisitions they are working on will be delayed if not derailed by the restrictions. The curbs focus on transactions worth more than $10bn but also much smaller ones if they fall outside the scope of the buyer’s normal business activities or involve real estate. 

“The People’s Bank of China is reluctant to impose such restrictions,” says Fred Hu, chairman of Primavera Capital Group. “They have worked very hard over the past couple of years to spur financial reform in general and capital account reform in particular. This is clearly a setback for these reforms.” 

One of the PBoC’s biggest financial reforms was announced in August 2015. The central bank said the renminbi’s dollar reference rate, around which it is to allowed to rise or fall no more than 2 per cent, would be set in accordance with the previous day’s trading and overnight market moves in Europe and the US. 

Under the earlier system, the PBoC had been free to set the reference rate wherever it wanted. When market pressures are driving the renminbi downwards, China’s central bank can now stem its fall only by selling dollars from its foreign exchange reserves. 

Such interventions have helped drive China’s forex stockpile from almost $4tn in early 2014 to $3.12tn at the end of October and also raised concern about another outflow — this year’s unprecedented surge in overseas M&A activity by Chinese companies. Non-financial outbound investments by China Inc reached almost $150bn over the first 10 months of this year, after a $121bn outflow in all of 2015. 

This has given ammunition to critics of another of the PBoC’s main reform initiatives of recent years — a more open capital account. 

“The PBoC has been very keen to open up the capital account and downplayed the risk that poses for the financial system,” said Louis Kuijs, Asia economist for Oxford Economics. “It’s the State Council, finance ministry and everyone else who are less keen in making capital account progress.” 

Yu Yongding, a former central bank adviser, argues that outflows are dangerous and that the PBoC’s use of forex reserves to counteract them has been a waste of money. Even with steady intervention to support the renminbi, the currency has depreciated more than 5 per cent against the dollar this year and last week fell through the 6.9 level. 

“Better late than never,” Mr Yu told the Financial Times this week. “The policy of increasing capital controls and stemming outflows is completely correct.” 

The PBoC is not, however, completely comfortable with this year’s M&A outflows. According to people close to the central bank, Mr Zhou has been a strong advocate of the need to reduce China Inc’s high debt levels and much of this year’s surge in overseas direct investment has been driven by highly leveraged companies venturing into areas far beyond their expertise.

Recent deals with doubtful synergies include an iron ore producer’s purchase of a UK video game developer and a copper smelter’s bid for the Hollywood production company behind Oscar-winning film The Hurt Locker. 

“So much money has been spent by Chinese companies on overseas hotels, football teams and properties,” says Huang Weiping, an economics professor at Renmin University in Beijing. “It is what Japanese companies did in the 1980s. These kind of outflows are not rational.” 

But many people doubt Chinese bureaucrats will be able to tell the difference between good acquisitions and bad ones. 

“In reality it’s very hard to differentiate the good guys from the bad guys,” Mr Hu argues. He suspects that the “the good guys will pay a heavy price and the bad guys will still find ways to move their money offshore”. 

Additional reporting by Wan Li

China stock market unfazed by falling renminbi

Posted on 30 November 2016 by

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors.

The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi devaluation caused an already falling market to drop further.

That episode seems to be a distant memory for investors, who say the central bank is getting better at communicating policy moves. Now the renminbi’s reference rate is determined by the previous day’s currency market movements.

“The domestic stock market rises when the renminbi goes down, which means equity investors don’t think lower renminbi is bad,” said Chen Long of Gavekal Dragonomics, a Beijing-based consultancy.

The positive half-year for the stock market is mainly fuelled by a lack of alternative investment options as domestic real estate has cooled, according to Chen Xingdong, chief China economist at BNP Paribas in Beijing.

“Last year stock investors moved their money into property. But that market’s tightly regulated now, and so money has flooded back into the stock market,” he said.

The current appetite of investors for stocks is a “classic short-term versus long-term response”, according to Chris Powers of Z-Ben Advisors, a Shanghai-based consultancy. “People can see in the short term that a falling renminbi may benefit exporters and aid monetary easing efforts.”

The enthusiasm comes despite a weaker renminbi hindering the Chinese government’s goals of internationalising its currency and rebalancing the economy towards consumption, he suggested.

Meanwhile China’s chances of being included in the highly desirable MSCI index are even lower now that Beijing plans stricter capital controls to stem the renminbi’s further decline.

China’s leadership has been pushing to get Chinese stocks into the index, which would mean funds would automatically send a wave of capital in Shanghai’s direction.

Asia markets tentative ahead of Opec meeting

Posted on 30 November 2016 by

Wednesday 2.30am GMT


Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today.

What to watch

Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The crude market has been volatile this week — rising 2 per cent on Monday and falling nearly 4 per cent on Tuesday — on the fluctuating hopes that big producers will agree to curb output and help correct the state of oversupply in the market.

Brent crude, the international benchmark, was up 0.4 per cent in Asia at $46.55 a barrel, while West Texas Intermediate added 0.4 per cent to $45.43.


Weakness in the yen overnight has given Japanese stocks a slight boost, with the Topix benchmark up 0.2 per cent. Australia’s S&P/ASX 200 was off 0.3 per cent, weighed down by materials and energy stocks after the drop in commodity prices on Tuesday.

Among individual shares, Samsung Electronics was up 3.9 per cent at a record high in Seoul a day after the company said it would boost its 2016 dividend and consider restructuring in an effort to allay investor concerns about its excess cash and poor corporate governance. Its shares closed flat on Tuesday, however.


The US dollar index closed 0.4 per cent lower on Tuesday despite data showing that the US economy grew a better than expected 3.2 per cent year-on-year in the September quarter. It was flat in Asia at 100.94 and facing a fourth straight day of declines.

The yen was 0.1 per cent stronger at ¥112.29 per dollar, having weakened 0.4 per cent in the previous session.

The New Zealand dollar was the big gainer among Asian currencies, up 0.4 per cent against the greenback after the country’s finance minister said it seemed interest rates there had “hit a floor”, although he did not see a situation in which rates would rise sharply.

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Scary movie sequel beckons for eurozone markets

Posted on 30 November 2016 by

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors.

Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German and Dutch elections poses a serious test for markets.

One key measure of risk aversion is the relationship between the bond yields of Germany and periphery countries. The difference between Italian and German bond yields has been widening as investors cast a nervous glance towards the first big political risk event, Sunday’s constitutional referendum in Italy, while the euro is under sustained pressure.

The European Central Bank’s trade-weighted euro index has slipped to its lowest level since March, thanks mainly to a post-US election fall of 4 per cent against the dollar.

The prospect of pro-growth polices under president-elect Donald Trump accounts for much of that slide, driving investors to buy the dollar. However Europe can play its own part in pushing euro-dollar to where several analysts now expect it to go — parity and beyond.

“If political risks do materialise, the downside for the euro is a lot more substantial than generally appreciated,” says Adam Cole, G10 FX strategist at RBC Capital Markets.

Not all share that view and think investors are worrying unduly.

After Brexit and Trump political risk looks more unreadable than ever, but there is a danger the market gets paranoid about the risk of European populists sweeping to power in 2017.

Investors scarred by pollsters misreading Brexit and Trump could hardly be blamed for fearing that the anti-establishment tide is coming Europe’s away.

“Anxiety will increase and market volatility will surely move higher ahead of these elections,” says Patrick Moonen of Dutch-based asset manager NN Investment Partners.

Volatility is already here. The euro rose almost 1 per cent early Monday in response to polls showing that François Fillon, winner of the centre-right primary to contest next year’s French presidential elections, would beat the National Front’s Marine Le Pen comfortably in a run-off.

The euro’s gain was then reversed at “breathtaking” speed, says Marc Chandler at Brown Brothers Harriman — proof, he says, that “the bearish sentiment toward the single currency remains intact”.

Still, the European version of political risk is complex, says Bilal Hafeez, FX strategist at Nomura. Tempting though it is to liken these upcoming events to Brexit or Trump, “the nature of the euro area political system is such that those types of outcomes are less likely”, he says.

A move through euro-dollar parity requires significant negative political news in Europe or a material surge higher in US Treasury yields, suggests Roger Hallam, currency portfolio investment officer at JPMorgan Asset Management.

Yes, investors are “absolutely focused” on European politics, he says, but he doubts a No vote in Sunday’s referendum represents an earthquake for Europe (“it’s more of a status quo”), while he considers a Le Pen victory a low probability.

None of this is a comfortable place for European Central Bank president Mario Draghi, who can add the US election outcome to the list of challenges he already faces.

With its current round of bond purchases set to end in March, the ECB is expected to unveil the third leg of its quantitative easing strategy at its council meeting next week. But then what?

Though a weaker euro at face value helps boost inflation and growth, policymakers must balance that against concerns Mr Trump’s win triggers a wave of protectionism that prevents eurozone exporters from reaping the gains of stronger US growth.

The recent rise of governments’ borrowing costs in the eurozone is also a concern. Their task is further complicated by the Italian referendum, with a No vote likely to trigger a further rise in Rome’s borrowing costs.

The ECB appears to be bracing itself for that outcome. Yields on Italy’s benchmark 10-year bonds fell on Tuesday on market speculation that the central bank was ready to speed up Italian government debt purchases in an effort to calm market nerves.

Policymakers cannot determine the outcome of European political events, but at least they can try to prepare investors for them.

Mr Hallam thinks policymakers will find investors receptive. “There’s a general sense around European political risk that we’ve watched this movie twice before and we were twice surprised at the ending, so let’s not have it happen a third time,” he says.

Renminbi strengthens further despite gains by dollar

Posted on 30 November 2016 by

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger.

The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last closed stronger last Thursday at Rmb6.9219.

The People’s Bank of China has set the daily midpoint fix for the renminbi’s 4 per cent trading band against the dollar at 6.88650 on Wednesday morning, just 0.03 per cent firmer but nonetheless marking a third consecutive move stronger.

But those moves broke rank from the recent trend of dollar-driven weakening. The dollar index, which measures the US currency against a basket of peers, had strengthened in afternoon Asia trade by 0.2 per cent.

The offshore rate (CNH), which is not technically limited by the trading band, was 0.21 per cent stronger at Rmb6.8995 against the greenback, or 0.79 per cent firmer since last Wednesday when it closed higher at Rmb6.9545.

Dollar rises as markets turn eyes to Opec

Posted on 30 November 2016 by

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members.

Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in New York, leaving the Wall Street barometer less than 0.3 per cent shy of its record high hit last week.

Hot topic
Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna.
The crude market has been volatile this week — rising 2 per cent on Monday and falling around 4 per cent on Tuesday — on the fluctuating hopes that big producers will agree to curb output and help correct the state of oversupply in the market.

The new session sees Brent crude, the international benchmark, up 1.2 per cent to $46.92 a barrel, while West Texas Intermediate is adding 1.2 per cent to $45.76 as traders await news of any developments out of the Austrian capital.

The oil price’s ability to influence sentiment in the broader market has diminished since the start of the year, when Brent’s plunge below $30 a barrel caused shares in explorers and producers to tank and rattled banking stocks on worries about bad loans to the energy sector.

But there is a concern among some investors that the oil/stock market correlation could tighten again if Opec’s failure to reach a credible deal causes prices to fall back sharply.

The CBOE Crude Oil Volatility Index, a gauge of stress in the energy market, is up from 38.0 at the start of the month to 55.1, its highest since March, when Brent crude was trading around $40.

What to watch

The ADP private sector jobs report for November is due for release at 13:15 GMT. Analysts expect a net 165,000 new positions to have been created, according to Reuters consensus forecasts.

The ADP is the precursor to the all-important monthly non-farm payrolls data coming up on Friday. Both reports would have to be pretty weak to stop the Federal Reserve from raising borrowing costs next month.

Futures markets are placing a 100 per cent probability on the central bank increasing interest rates by 25 basis points on December 14.

Indeed, the two sets of jobs data probably provide a greater risk if they are stronger than expected, for that may cause the markets to raise bets on a faster pace of Fed tightening.

The pan-European Stoxx 600 index is down 0.2 per cent as miners lead the declines.

The UK’s FTSE 100 is off 0.1 per cent as Royal Bank of Scotland
retreats after being singled out for struggling in the latest banking system stress tests.

Italy’s FTSE MIB index is recovering 0.2 per cent ahead of the constitutional referendum this weekend. Asian trading was muted and mixed. Japan’s Topix benchmark closed barely changed and Australia’s S&P/ASX 200 fell 0.3 per cent, weighed down by materials and energy stocks after the drop in commodity prices later on Tuesday.

Greater China markets exemplified the muddled mood, with Hong Kong’s Hang Seng gaining 0.3 per cent in response to Wall Street’s overnight advance, but the Shanghai Composite shed 1 per cent as resources stocks fell on fears that the central bank’s attempts to support the renminbi by reducing liquidity in the financial system would hit trading in commodity assets.

The US dollar index is up 0.2 per cent to 101.16, just below last week’s near 14-year peak of 102.05, as the buck continues to be supported by Tuesday’s economic data, which included annualised third quarter GDP growth of 3.2 per cent and US consumer confidence hitting a nine-year high in November.

The yen is 0.3 per cent weaker at ¥112.63 per dollar and the euro is off 0.1 per cent to $1.0632 even though German retail sales enjoyed a bumper October, data showed.

Sterling is off 0.1 per cent to $1.2473 after Bank of England governor Mark Carney said the UK’s economic outlook faced “continued uncertainty” as Brexit jostling drags on.

The New Zealand dollar was a notable gainer among Asian currencies, up 0.3 per cent against the greenback to $0.7142 after the country’s finance minister said it seemed interest rates there had “hit a floor”, although he did not see a situation in which rates would rise sharply.

Fixed income
Monetary policy divergence is driving the yields between US and eurozone benchmark bonds further apart.

The US 10-year Treasury yield, which moves opposite to the bond price, is up 1 basis point to 2.31 per cent as the Fed rate hike looms.

The equivalent maturity German Bund is slipping 2bp to 0.21 per cent after European Central Bank president Mario Draghi said monetary policymakers will make a decision on the third leg of quantitative easing in early December.

A stronger dollar and the market’s broadly cautious tone is weighing on many commodity prices.

Further downward pressure comes from a sell-off in China-traded futures after the concerns about Beijing tightening liquidity caused investors to close bullish bets.

Coking coal and rebar futures dropped by the most on record, according to Reuters, while lead, zinc, and rubber also fell sharply.
Gold is steady at $1,188 an ounce.

Oil currencies poised to get a boost if Opec secures output cut

Posted on 29 November 2016 by

The oil price has been unsurprisingly choppy in the lead-up to Opec’s meeting in Vienna on Wednesday. Will a deal to curb or cut production be reached?

Perhaps more importantly, will any deal be adhered to? Sceptics expect “yes” for the former and “no” for the latter.

But forex strategists at UniCredit think there is a greater chance of positive outcomes for oil-related currencies from the Opec meeting.

Brent crude has pulled back by several dollars from the recent peak it reached following the Algiers proposal to cut production, “suggesting that the market has priced out a considerable amount of the initial optimism”, said the Italian broker.

“In this sense, if Opec members this Wednesday do not agree on cutting production, sustained downside in oil prices and hence oil-related currencies appears to be limited.”

Alternatively, any deal deemed credible should cause a jump in oil prices, and — providing the US dollar (USD) does not see another surge higher — should boost the usual commodity currency suspects such as the Canadian dollar (CAD) and Russian rouble (RUB), said UniCredit.

It has looked at longer term correlations with the oil price and those currencies.

“We find that, should the oil price rise towards $55 a barrel, this by itself would be consistent with USD-RUB at around 60 (ie. a gain of 8 per cent for the RUB) and USD-CAD at 1.27 (ie. an appreciation of roughly 5.5 per cent for CAD).”

Renminbi holds ground against the dollar

Posted on 29 November 2016 by

The renminbi strengthened against the dollar on Tuesday after China’s central bank tightened its currency trading band for a second straight day.

The People’s Bank of China set the midpoint of the onshore version of the renminbi’s 4 per cent trading band against the dollar at Rmb6.88890 on Tuesday, up 0.2 per cent from Monday.

The renminbi remains near an eight-year low against the US dollar as the election of Donald Trump has intensified longstanding depreciation pressure.

The offshore rate strengthened 0.3 per cent to Rmb6.892 per dollar on Tuesday, as the world’s reserve currency ebbed until stronger-than expected US economic data triggered buying of the dollar in the New York trading session.

The index tracking the dollar against six of its rivals was up 0.1 per cent at 101.45, as the euro slipped below $1.06, after two consecutive sessions of overall decline. The dollar’s sustained run higher since the US presidential election has pushed the index to its highest level since 2003.

The trend of stronger dollar, higher bond yields and record US equity highs is seen weighing on emerging markets, with the risk of rising capital outflows.

“The immediate risk is that relentless capital outflows could weaken currencies and make debt expensive enough to warrant sharp demand adjustment in some EM economies. Those ranked as highly vulnerable in our analysis are clearly under scrutiny at this juncture,” noted analysts at Deutsche Bank.

“China remains in the high-risk category in this iteration. Weighed down by a sharp decline in growth momentum, an overvalued currency, and a heavily-leveraged corporate sector, China continues to struggle in taking steps to correct financial imbalances without undermining the growth dynamic. Rapid credit growth and frothy equity and property markets add to its vulnerability,” said Taimur Baig, chief economist.

Meanwhile, South Africa’s rand was hit by the outlook for sustained political turbulence at the top of the ruling African National Congress party. The currency weakened 2.1 per cent with R13.9889 required for a dollar after its president, Jacob Zuma, survived the most serious threat to his tenure, extending the prospect of uncertainty relating to the likelihood of further challenges to his leadership.

Mr Zuma and his allies in the ANC were said to have thwarted the no-confidence vote at a meeting of its national executive committee in Pretoria after hours of heated argument late into Monday evening. Mr Zuma’s opponents struck after rising concerns that the ANC could lose power for the first time since it overthrew apartheid in 1994, unless it forces Mr Zuma from office well before national elections in 2019, when he is due to step down.

Mr Baig said Deutsche Bank’s “EM vulnerability monitor”, designed to assess the susceptibility of countries to crises, found that “South Africa’s ranking has worsened materially”, saying “political noise” was “particularly relevant in this context”.