Emerging market stocks were a sea of red on Tuesday as speculation of a US interest rate rise as soon as September extended their longest losing streak in 25 years to 12 days.
A dip in the dollar gave some respite to Turkey’s record-low lira and Indonesia’s battered rupiah, but there was no such relief for equities as MSCI’s main EM index took its losses since late April to over 9 per cent.
It was down 0.7 per cent as selling began to gain momentum again in Eastern Europe but most of the damage had been done by Asia overnight where Indonesian stocks slumped more than 3 per cent and the Philippines shed 2.1 per cent.
“It has been a pretty violent pullback for emerging market stocks,’’ said UBS EM strategist Manik Narain.
“To a large extent it is related to growth. Median EM growth has decelerated to 4 per cent, which is the lowest since 1999.’’
Emerging markets investors’ confidence is also suffering on worries over the end of an unprecedented spell of record low global interest rates, a spike in FX volatility and growing political uncertainty in some key countries.
Turkish markets steadied a day after parliamentary election results that severely weakened the position of the ruling AK party had sent them into a tailspin, with stocks clawing back 0.5 per cent of the 5 per cent they had lost.
Narain at UBS added that many EM traders’ woes were being compounded because they had hedged their main positions with bets that the euro would stay low as the ECB pressed on its €1 trillion QE programme.
Since mid-April though the euro has surged 8-1/2 per cent against a basket of 20 top EM currencies, inflicting additional pain on top of the heavy losses on stocks, bonds and the EM currencies themselves.
“Investors have effectively taken a double-hit,’’ Narain said.
The 12th day of losses for MSCI’s EM benchmark matched the longest run in the red since 1990 and since Reuters’ records on the index began back in the late 1980s.
The performance in recent months would have been far worse if it hadn’t been for big gains from China’s stock market and from Russia which has bounced back strongly from last year’s selloff following the unrest in Ukraine.
Stocks in China couldn’t fend off the pressure in Asia on Tuesday but remained near a seven-year high, while Russia stocks were flat as they outperformed the rest of the region again.