Emerging market equities came under selling pressure for the second day in a row as concerns rise that elevated global inflation will prompt central banks in developed economies to rein in stimulus measures.
MSCI’s broad EM stock barometer fell about 0.7 per cent on Thursday in US dollar terms, bringing its fall over the past two days to 1 per cent — its steepest slide in about three weeks.
Stocks fell across several bourses in Asia and in other emerging markets, ahead of the latest meeting of Turkey’s central bank and following a disappointing trading debut for a blockbuster Indian initial public offering.
Hong Kong’s Hang Seng index dropped 1.4 per cent and mainland China’s CSI 300 fell 1 per cent. Meanwhile, India’s Sensex share index dropped 0.6 per cent after shares in Paytm owner One Communications fell more than 20 per cent following its $2.5bn IPO that was met with worries about the fintech group’s business prospects.
Investor sentiment towards emerging markets has soured because of high rates of inflation worldwide and a slowdown in China’s growth driven by stresses in its economically significant but indebted property sector, as well as coronavirus lockdowns.
“We expect the world economy to grow at 6 per cent this year and 4.4 per cent in 2022,” Barclays analysts Ajay Rajadhyaksha and Amrut Nashikkar said in a note to clients. “China is slowing considerably.”
A strong dollar, which has firmed in recent weeks as traders primed for the US Federal Reserve to lift interest rates from a record low next year, has also sparked concerns about emerging market companies that borrow in the global reserve currency.
The dollar index, which measures the US currency against six others, traded at close to a 16-month high after gaining more than 1.6 per cent so far this month. Brent crude, the oil benchmark, dropped 1 per cent to $79.45 a barrel.
Turkey’s lira fell as low as 10.98 to the dollar, its weakest level on record, taking its loss against the US currency to about 14 per cent in November so far.
Turkey’s central bank, which last month slashed interest rates by an unexpectedly deep 2 percentage points, will make its next monetary policy decision later on Thursday. Turkish president Recep Tayyip Erdogan, who has promoted an unorthodox view that higher borrowing costs exacerbate inflation, has asserted increasing control over the nominally independent central bank with rounds of dismissals of its senior officials, including two deputy governors last month.
Last month, the annual rate of consumer price inflation in Turkey soared to 20 per cent.
“Investors are mostly treating Turkey as a sideshow but we can’t be complacent about it,” said Remi Olu-Pitan, multi-asset fund manager at Schroders.
“It is reflecting problems such as high inflation and weak consumer demand that are present in other emerging markets,” she added. “So it could lead to thoughts about [which country] is next.”
In Europe, the Stoxx 600 share index was flat in early dealings. It hit a record high on Wednesday as investors cheered better than expected corporate results and signals from the European Central Bank that it would maintain negative interest rates to boost lending and spending.
The yield on Germany’s 10-year Bund slipped 0.01 percentage points to minus 0.26 per cent as the eurozone’s benchmark low-risk asset rose in price. The 10-year Treasury yield fell by the same amount to 1.56 per cent.