Emerging Markets – US-China tension, rate rise worries pull down EM stocks

BENGALURU: Emerging market stocks fell over 1 percent on Friday, on track for their fourth weekly decline, as US-China tension weighed on sentiment, while investors awaited US inflation data for signs on the Federal Reserve’s interest rate rise trajectory, according to Reuters.

The MSCI EM equities index slipped 1.4 percent and was set for a weekly fall of 2.5 percent.

Geopolitical tensions added to a downbeat mood driven by fears of more interest rate rises by the Fed, with two US officials saying on Thursday that the US was set to expand the number of troops helping train Taiwanese forces, at a time of heightened tension with China.

China’s yuan fell to seven-week lows against the dollar, while Chinese stocks closed down 1 percent, weighing across EM assets.

Investors will also closely monitor data on the personal consumption index (PCE), the Fed’s preferred inflation gauge, to try to assess the pace of interest rate increases.

The data, expected at 1330 GMT, is likely to show core PCE, which excludes volatile food and energy prices, moderated slightly on a yearly basis in January from a month ago.

“There are geopolitical tensions, not just Taiwan, but Russia-Ukraine as well. I think these are probably less of a risk than US interest rates and the dollar uncertainty,” said Jon Harrison, managing director, EM Macro Strategy at TS Lombard.

Emerging market stocks had a bumper start to 2023 but equities pulled back sharply in February falling 5.5 percent as signs of strength in the US economy brought worries about interest rates staying higher for longer.

Regional currencies were down 0.5 percent, set for their third weekly decline.

In central and eastern Europe, Hungary’s forint was flat against the euro.

The Turkish lira hit a record low, weakening to beyond 18.88 against the dollar, with a government official saying that the recent earthquake disaster would keep inflation above 40 percent in the run-up to elections scheduled for June.

The South African rand edged 0.7 percent lower against the dollar as investors were reluctant to price more risk into local markets.

South African state power utility Eskom has appointed its chief financial officer, Calib Cassim, as interim chief executive officer with immediate effect after the current CEO was asked to leave.

In India, the venue for a G20 financial leaders meeting, US Treasury Secretary Janet Yellen accused Russian officials of being “complicit” in atrocities in Ukraine, while host India avoided mentioning the year-long war in inaugural remarks. 


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