Emerging-Market Stocks Decline Amid Economic Troubles in China
In a session marked by low liquidity due to the US market being closed for the Labor Day holiday, emerging-market stocks faced a decline as fresh signs of economic troubles in China emerged.
The MSCI emerging market equities index fell 0.3% on a closing basis, with Chinese blue-chips like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. experiencing losses. However, there was a rebound in shares of Taiwan Semiconductor Manufacturing Company Ltd.
The decline on Monday followed data indicating that Chinese factory activity had contracted for a fourth consecutive month in August. This latest signal raised concerns about the world’s second-largest economy struggling to meet its growth target for the year.
In the currency markets, attention shifted towards the countdown to US monetary easing, with upcoming data expected to shape expectations around the magnitude of interest rate cuts, the impact on the dollar, and sentiment towards riskier assets. Reports, including US jobs data later in the week, are anticipated to influence market movements.
According to Win Thin, the global head of markets strategy at Brown Brothers Harriman in New York, the US economic growth remains robust, driven by strong consumption, while disinflation continues gradually. Thin believes that the Federal Reserve will likely begin cutting rates this month in a gradual manner.
The MSCI emerging FX gauge, which tracks total currency returns including interest income, fell by 0.1%. Meanwhile, oil prices were lifted as Libya declared force majeure at a key oil field amidst widening shutdowns. Oil prices fluctuated between gains and losses during the session due to thin liquidity in the markets.
In Latin America, the Brazilian real experienced losses despite the central bank’s auction of currency swaps to curb the decline. Concerns about Brazil’s fiscal outlook intensified following President Luiz Inacio Lula da Silva’s announcement of a plan to increase the number of families benefiting from cooking gas subsidies. Additionally, the Supreme Court’s decision to block access to the social media platform X in Brazil further dampened sentiment.
In Mexico, the peso depreciated as traders awaited developments in the government’s plan to overhaul the judiciary system. The new Congress, which will debate the reform, began its work on Monday.
In credit markets, Hungary is offering yen-denominated bonds for the first time since 2022, bringing the government closer to a limit imposed on the state’s foreign exchange-denominated debt.
Overall, the emerging-market stocks faced challenges amid economic troubles in China and uncertainties surrounding US monetary policy. The impact of these factors on global markets remains to be seen as investors navigate through a volatile period.
©2024 Bloomberg L.P.
