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Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg

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(Bloomberg) -- India became the latest epicenter of the nervousness sweeping risky assets as stocks, bonds and the rupee fell. Goldman Sachs Group Inc. said emerging-market currencies, which dropped every day but one this month, were undervalued, while Nomura Holdings Inc. warned investors not to lump all developing nations together.

The rupee sank as much as 1.3 percent, while stocks dropped the most since March and bonds fell to the lowest level since 2014. Turkey’s lira and Brazil’s real also weakened, pushing the benchmark MSCI index of currencies close to dropping below its 200-week moving average for the first time since early 2017. South Africa’s rand bucked the retreat, extending its advance to a third day.

Though India’s current-account deficit was narrower than expected, the fact that it widened at all -- it was the biggest shortfall in five years -- was enough to rattle traders. The government asked the central bank to bolster efforts to support the rupee, Asia’s worst-performing currency in the past month, people familiar with the matter said.

Investors have been increasingly concerned about countries with unsustainable current-account and fiscal deficits as well as accelerating inflation and higher-than-average foreign ownership of domestic debt, according to State Street Global Advisors.

These are the markets that are “more prone to global mood swings,” said Abhishek Kumar, the London-based sector head for emerging markets, fixed-income beta.

The world’s developing economies have been reeling this year from a combination of escalating trade tensions, the gradual end of central-bank policy accommodation and a raft of idiosyncratic risks from contentious elections in Brazil to controversial land-reform measures in South Africa.

For Woodman Asset Management AG, the negative local news across emerging markets has already been priced in. And since current-account deficits are lower than four years ago and inflation is relatively tame, the spike in volatility will probably wane over the next few months, according to Zurich-based Bernd Berg, a global macro and foreign exchange strategist.

There will be “entry opportunities on the horizon as many EM currencies are now undervalued after the volatile moves of the last months,” he said.

Some analysts at Goldman Sachs agree. The rout has pushed emerging-market currencies into undervalued territory, especially the real, the rand and ruble, according to analysts Mark Ozerov and Kamakshya Trivedi. They also singled out the Mexican peso, even though the currency is the only gainer among developing-nation peers so far this year.

Nomura is calling for investors to differentiate between economies across emerging markets. Analysts including Robert Subbaraman, the Singapore-based head of emerging-markets economics, used an early-warning model to show that seven nations -- Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine -- are at risk of an exchange-rate crisis, five of which are already in turmoil. South Africa and Pakistan are the standouts.

That leaves a long list of countries with “very low risk” of a full-blown crisis, the analysts said. “As investors focus more on EM risk it is important not to lump all EMs together as one homogeneous group.”

--With assistance from Netty Ismail.

To contact the reporter on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Robert Brand, Dana El Baltaji

©2018 Bloomberg L.P.

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