Emerging market stocks slumped 0.7% on Friday, marking a dour start to the fourth quarter on slowing growth and rising inflation worries, as they headed for their fourth week of losses for the first time in more than two years.
MSCI’s index of EM stocks fell for the third time this week as data showed weakening manufacturing activity across Asia as well as Russia in September due to curbs to contain the latest wave of the coronavirus pandemic, as well as indications of slowing growth in China.
An index of Asian shares excluding Japan lost 1%. Taiwan shares slumped 2% to a more than six-week low, leading steep losses across the EM space.
Chinese markets are closed for a week from Friday for the Golden Week holiday. But concerns about China’s power crisis and the fate of troubled China Evergrande Group also persisted.
“A regime shift is underway as expectations of an emphatic EM growth bounce are dashed by mounting global growth risks from China and persistent inflation surprises,” strategists at JPMorgan said in a note.
In debt markets, FTSE Russell said on Thursday that Saudi Arabia’s sukuk will be added to its widely followed local currency Emerging Markets Government Bond Index (EMGBI), effective next April.
Morgan Stanley’s EM domestic debt fund outflows accelerated in the latest week to levels last seen in March 2021, it said in a client note, with overall outflows amounting to $2.7 billion. But sovereign issuance in September hit a record of $23.9 billion, the note said.
With the dollar trading near its highest levels of the year, emerging currencies are also facing their fourth week of declines for the first time since March.
“We believe a more durable downturn in EM FX risk appetite is now likely,” JPM said, adding that they are now “underweight” on developing world currencies.
On the day, Turkey’s lira firmed 0.3%, but stayed close to record lows. Turkey has extended its lira bank deposits’ withholding tax support until the end of December. Data showed Turkey’s factory activity grew in September for a fourth straight month.
South Africa’s rand ticked 0.6% higher with pandemic restrictions being eased to its lowest alert level, the second such loosening this month as the country looks to open up its economy.
Gains in Russia’s rouble were limited by falling oil prices.
Overnight, the central banks of Mexico and Colombia both raised the key interest rate by 25 basis points, as expected, to curb rising inflation.
The moves were in line with most EM central banks which have adopted tightening cycles to contain inflation as their economies attempt to come out of a pandemic-induced slump.