China’s Property Concerns Cast Shadow on EM Stocks; Week of Central Bank Decisions Ahead

Emerging market (EM) equities faced a challenging start to the week, primarily influenced by China’s real estate sector uncertainties. Hong Kong’s primary benchmark, alongside other EM stocks, felt the pressure as major central banks prepare for policy determinations.

Key Points:

• The Turkish lira experiences a downturn, going beyond 27 for the first time in 21 days.
• Hang Seng’s struggles are intensified by China’s real estate sector.
• Ethiopia’s foreign currency rating takes a hit from Moody’s.
• EM stocks experience a 0.8% decline, while currencies remain relatively stable.

China’s Property Sector: A Domino Effect

The Hang Seng, Hong Kong’s key index, saw a 1.4% decline influenced by a concerning 2.0% dip in the property sector. This followed the detention of some staff from the notable developer, Evergrande Group, hinting at fresh investigative pursuits. As of 8:55 GMT, the MSCI’s index for EM equities reflected a decrease of 0.8%.

Global Influences and Expectations

South Korea’s primary index also noted a drop, largely attributed to chipmakers. News surrounding Taiwan’s TSMC requesting delays from key suppliers due to demand uncertainties played a significant role. Following recent positive indicators from the Chinese economy, attentions are now converging on the upcoming Federal Reserve’s rate verdict. Jon Harrison of TS Lombard emphasized potential repercussions for EM stocks should the U.S. economy regain momentum and consequently the dollar strengthens.

Currency Movements: A Mixed Bag

EM currencies showcased a slight dip of 0.1% against a more formidable dollar, with anticipated rate outcomes from Brazil, South Africa, and Turkey. Particularly, the Turkish lira’s decline beyond 27 against the dollar has captured attention, especially with an impending central bank gathering. Notably, Poland’s zloty and the Czech crown saw promising movements, with the latter benefiting from a central bank rate decision announcement.

Other Noteworthy Developments

Moody’s delivered a double-edged update. While Ethiopia’s foreign currency rating was downgraded due to a higher default likelihood, Greece witnessed an uplift in its credit rating, pointing towards an accelerated reduction in its government debt.