Emerging market stocks and currencies came under pressure on Monday as the war in Ukraine raged on and worries mounted over China’s wobbly economy, while Russia’s rouble inched up against the dollar in Moscow trade.
Ukraine on Monday rejected Russian calls to surrender the besieged port city of Mariupol.
MSCI’s index of EM stocks and currencies slipped 0.7% and 0.1% respectively, after recording their best week since September 2021 last week.
The rouble traded at 105 to the dollar as investors awaited a planned resumption of OFZ treasury bond trading and eyed a $66 million coupon on a 2029 sovereign dollar bond due Monday.
The central bank has allowed a limited number of additional market operations over the next two weeks, though it is yet to say when trading in instruments like stocks can resume.
“Although for EMs as a whole, terms of trade have improved, the major concern is that there may be some fears of contagion and even fire-selling, with people dumping exposure because they got stung by Russian and Ukrainian assets,” said Gabriel Sterne, head of strategy services and global EM research at Oxford Economics.
The broader emerging market stocks and currencies indices are set to end the month lower, as they face rising risks from surging commodity prices, inflationary pressures, and exposure to imports from Russia.
“EM currencies could be in for a little bit of pressure over the next few weeks as the terms of trade effects come through. So far, that picture is mixed,” Sterne added.
China and Hong Kong shares fell between 0.1% and 0.4%, dragged lower by a Covid-19 resurgence and an unchanged benchmark interest rate by the Chinese central bank. Markets widely expect policymakers to resume monetary easing soon.
Adding to nerves, shares of property developer China Evergrande Group and onshore bonds issued by its flagship unit Hengda Real Estate Group were suspended from trading, pending an announcement.
Egypt’s pound depreciated by 10.7% after weeks of pressure on the currency as foreign investors pulled out billions of dollars from its treasury markets after Russia’s invasion of Ukraine.
Turkey’s lira and South Africa’s rand were steady against the dollar, which edged higher in early trade.