Oct. 1 (Reuters) – Emerging market equities fell 0.7% on Friday, marking an austere start to the fourth quarter amid slowing growth and rising inflation concerns, as they headed towards their fourth week of losses for the first time in more than two years.
The MSCI Emerging Markets Equity Index fell for the third time this week, with data showing weakening manufacturing activity in Asia as well as Russia in September due to restrictions aimed at containing the latest wave of the pandemic coronavirus, as well as indications of slowing growth in China.
An index of Asian stocks excluding Japan lost 1%. Taiwan stocks fell 2% to a more than six-week low, causing significant losses in the emerging markets space.
Chinese markets are closed one week from Friday for the Golden Week holidays. But concerns about China’s energy crisis and the fate of the ailing China Evergrande group also persisted.
“Regime change is underway as expectations of a sharp rebound in emerging market growth are dashed by growing risks to China’s global growth and lingering surprises from inflation,” JPMorgan in a note.
In debt markets, FTSE Russell said Thursday that the Saudi Arabia sukuk will be added to its widely tracked Emerging Markets Government Bond Index (EMGBI) in local currency starting next April.
Morgan Stanley’s domestic debt outflows from emerging markets have accelerated over the past week to levels last seen in March 2021, he said in a client note, with outflows total amounting to $ 2.7 billion. But sovereign issuance in September hit a record high of $ 23.9 billion, according to the note.
With the dollar trading near its highest levels of the year, emerging currencies are also facing their fourth week of decline for the first time since March.
“We believe that a more lasting slowdown in emerging markets’ risk appetite is now likely,” JPM said, adding that they are now “underweight” in developing country currencies.
On that day, the Turkish lira strengthened 0.3%, but remained close to its all-time low. Turkey extended its aid for withholding tax on bank deposits in lira until the end of December. Data showed that Turkish factory activity increased in September for a fourth consecutive month.
The South African rand rose 0.6% as pandemic restrictions were relaxed to its lowest alert level, the second of those releases this month as the country seeks to open up its economy.
The Russian ruble’s gains were limited by falling oil prices.
Overnight, the central banks of Mexico and Colombia both raised their policy rates by 25 basis points, as planned, to curb rising inflation.
These measures were in line with most emerging market central banks which have adopted tightening cycles to contain inflation as their economies try to emerge from a pandemic-induced slump.
For the CHART on the performance of emerging market currencies in 2021, see tmsnrt.rs/2egbfVh For the CHART on the performance of the MSCI emerging index in 2021, see tmsnrt.rs/2OusNdX
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Reporting by Susan Mathew in Bengaluru Editing by Mark Heinrich