Emerging market stocks hit a near six-week low on Tuesday on concerns over the Chinese property market and as a technology rout spilled over from the United States, while waning risk sentiment hurt most currencies.
Worries about rising defaults by Chinese property firms grew after Fitch downgraded Sinic Holdings, and as investors digested efforts by China Evergrande to clear its massive $300 billion debt pile.
Markets were also reeling from a steep sell down in US technology shares, with Hong Kong-listed Baidu Inc, Alibaba Group and Tencent, some of the largest emerging market (EM) stocks, down between 1% to 1.5%.
MSCI’s EM stock benchmark fell nearly 0.3%, while the tech-heavy South Korean index slumped 1.9%.
Rising US Treasury yields weighed on most EM currencies, with Russia’s rouble leading early losses in Europe, the Middle East and Africa (EMEA) with a 0.4% decline.
Investors were waiting for the government to unveil a foreign exchange buying plan that could hurt the rouble.
The rouble took little support from a spike in oil prices, which surged to around three-year highs after OPEC+ said it would increase supply only gradually.
But Russian stocks added 0.8%, leading gains in the EMEA region as oil and gas heavyweights benefited from higher crude prices. Gazprom rose 1.3%.
Investors feared that a jump in commodity prices would feed inflation and disrupt economic activity, particularly in emerging markets.
“While tech led the decline, the sell-off was ubiquitous with only energy and utilities showing gains. – And for obvious reasons as the surge in energy prices was fuelling fears of at least disruptive inflation if not outright stagflation,” analysts at Mizuho wrote in a note.
“‘Twin deficit’ and/or high inflation EM currencies vulnerable to higher energy import cost, may be subject to restraint or worse depreciation despite a weaker dollar.”
Global economies have struggled with a spike in inflation this year, driven by rising commodity prices and as the withdrawal of Covid-related curbs spurred a rebound in economic activity.
Several EM central banks have begun rate-hike cycles this year, in response to rising prices. Investors are now awaiting a potential hike in Romania later in the day, while Poland’s central bank is also expected to raise rates this week.
But with US inflation also heating up, the possibility of hawkish measures from the Federal Reserve has weighed on emerging markets in recent sessions.