Emerging market stocks bounced for the first time in nine sessions on Tuesday but gains were limited by fears of a slowdown in China and a hawkish U.S. Federal Reserve, while South Africa‘s rand struggled to break higher.
The MSCI’s index for EM equities .MSCIEF edged 0.6% higher, still hovering at near six-week lows after prolonged lockdowns in China’s financial hub, Shanghai sparked worries about its economic impact.
Fears remained about a more aggressive monetary tightening cycle by the Fed, further hampering the attractiveness of emerging markets.
“Caution is likely to remain the name of the game this week with sentiment fragile as strict lockdowns in China, concerns around a global slowdown, Fed rate hike fears and geopolitical risks leave investors on edge,” said Lukman Otunuga, senior research analyst at FXTM.
The dollar busted higher and remained perched at two-year highs on its safe-haven appeal keeping the MSCI’s index for emerging market currencies range bound.
South Africa‘s rand weakened for the seventh straight session, remaining at its lowest level since early January. The currency was last down 0.4% against the greenback.
Markets in Africa‘s most industrialized economy have been plagued with concerns about the damage from recent devastating floods and severe power outages by state utility Eskom. Analysts have also pointed to the commodity-exposed rand being over-valued recently.
Emerging market currencies that had previously benefited from surging commodity prices triggered by the Ukraine war are gradually coming off their strong run as the reality of inflationary pressure, higher developed market rates coupled with a more mature period in emerging market monetary tightening cycles sets in.
China’s yuan, on the other hand, strengthened after the central bank stepped in to slow the currency’s sharp falls by easing banks’ foreign exchange holding requirements.
The Russian rouble opened higher against the dollar in Moscow trade, while hitting a more than two-year high against the euro. Investors now look ahead to an expected rate cut on Friday.
The Hungarian forint firmed against the euro ahead of a central bank meeting later in the day where analysts expect another hefty rate hike as the bank battles a surge in inflation.
Sri Lankan stock markets shut early for a second straight day after a steep fall as investors fled risky assets following a sharp rise in interest rates against the backdrop of an economic crisis in the country.