Tech Stocks and China Drag Down Emerging Markets as Rebound Stalls
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Tech stocks, China drag down emerging markets as rebound stalls
(Bloomberg) -- Emerging-market stocks headed for the biggest drop since the Aug. 5 global slump as China's economic woes and approaching risks including the U.S. Federal Reserve's Jackson Hole conference and earnings from Nvidia Corp. left investors cautious. The MSCI Emerging Markets Index fell for only the third time since that volatile first Monday of August, pulling back from an almost nine per cent rebound. Technology stocks led the losses, taking their cues from the U.S. market, with traders awaiting Nvidia's earnings for answers in the debate over whether the craze for artificial intelligence is overdone. Chinese stocks fell both on the mainland and in Hong Kong amid signs global investors are pruning their exposure to the country. While EM stocks are heading for a monthly gain, investors remain on the edge as U.S.-market gyrations and the November presidential election weigh on sentiment. An interest-rate cut by the Fed next month is priced in, but the focus is turning to the underlying economic rationale for the easing. If rate cuts are necessitated by a sharp deceleration in U.S. growth, they could still leave investors unwilling to take on emerging-market risk. "The general sentiment is still risk-off given the uncertainties ahead -- which would include U.S. election noise, geopolitical tensions, slowing U.S. growth, and elevated earnings-growth expectations," said Vey-Sern Ling, managing director at Union Bancaire Privee in Singapore. Information-technology stocks accounted for 70 per cent of the MSCI gauge's losses Wednesday, with consumer-discretionary stocks that include e-commerce companies accounting for another 13 per cent. Small gains for consumer-staple and commodity stocks failed to offset the tech declines. JD.com Inc. plunged 8.7 per cent in Hong Kong as Walmart Inc. sought to dispose of its stake in the Chinese e-commerce firm. That triggered a selloff across Chinese stocks as the move pointed to concerns over the country's consumption outlook as well as waning confidence in its equity market. Overnight data from the U.S. showed that buyers of exchange-traded funds continued to pull money out of Chinese mainland stocks. The Xtrackers Harvest CSI 300 China A-Shares ETF witnessed the single-biggest net outflow since Aug. 8, extending a run without net inflows since May 20. The KraneShares CSI China Internet Fund also had withdrawals, as it continued a streak of outflows since June 4. Chinese stocks are "deeply unloved by the global investment community," said Ling of UBP. "The stimulus hasn't been enough to turn the economy and housing market around. Until then, there cannot be a sustained rally." Despite the recent rebound, stocks could continue to be volatile at least until the next catalyst for Asian technology stocks in the form of Nvidia's results on Aug. 29, he said. For China, traders would wait for data confirming that economic growth has bottomed out before sending stocks on a "structural rebound." Emerging-market currencies treaded water on Wednesday after the benchmark index rose to a record earlier in the week. The shekel dropped by the most among 32 widely traded emerging and frontier-market currencies after U.S. Secretary of State Antony Blinken left the Middle East without a cease-fire deal between Israel and Hamas. The South African rand extended losses as bets for a September rate cut built up. However, traders watching real yields received good news as the country's inflation rate fell to the lowest level in three years. Meanwhile, the City of Johannesburg was considering raising as much as 2 billion rand (US$112 million) of new debt to address a mounting infrastructure backlog.
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Tech Stocks, China Drag Down Emerging Markets as Rebound Stalls
Emerging-market stocks headed for the biggest drop since the Aug. 5 global slump as China's economic woes and approaching risks including the Federal Reserve's Jackson Hole conference and earnings from Nvidia Corp. left investors cautious. The MSCI Emerging Markets Index fell for only the third time since that volatile first Monday of August, pulling back from an almost 9% rebound. Technology stocks led the losses, taking their cues from the US market, with traders awaiting Nvidia's earnings for answers in the debate over whether the craze for artificial intelligence is overdone. Chinese stocks fell both on the mainland and in Hong Kong amid signs global investors are pruning their exposure to the country.
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Emerging market stocks face a downturn as tech sector and Chinese markets struggle. The MSCI Emerging Markets Index experiences its longest losing streak since February, raising concerns about the sustainability of the recent rally.
Tech Sector Woes and Chinese Market Struggles
The emerging markets' recent rally has hit a roadblock, with technology stocks and Chinese markets leading the downturn. The MSCI Emerging Markets Index has fallen for the fourth consecutive day, marking its longest losing streak since February
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. This decline has raised questions about the sustainability of the gains made earlier in the year.Impact on Major Tech Companies
Major technology companies have been at the forefront of this decline. Tencent Holdings Ltd., the Chinese internet giant, saw its shares drop by 2.9% following disappointing earnings results
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. Similarly, Taiwan Semiconductor Manufacturing Co., a key player in the global chip industry, experienced a 1.7% decrease in its stock value.Chinese Market Concerns
The Chinese market, a significant component of emerging market indices, has been a major contributor to the current downturn. The nation's ongoing economic challenges, including a property crisis and weak consumer spending, have dampened investor sentiment
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. The CSI 300 Index, which tracks some of the largest companies listed in Shanghai and Shenzhen, has declined by 0.7%, further exacerbating the situation.Global Economic Factors
The broader global economic landscape has also played a role in the emerging markets' struggles. Rising US Treasury yields have made the dollar more attractive to investors, putting pressure on emerging market currencies and assets
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. This shift in investor preference has contributed to the outflow of capital from emerging markets, further weakening their position.Related Stories
Analyst Perspectives
Market analysts have expressed concerns about the current trend. Marvin Chen, a strategist at Bloomberg Intelligence, noted that the enthusiasm surrounding China's economic recovery earlier in the year has waned
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. He pointed out that without a robust recovery in China, it would be challenging for broader emerging markets to sustain their rally.Looking Ahead
As investors reassess their positions, the future of emerging markets remains uncertain. The technology sector, which has been a key driver of growth in recent years, is now facing headwinds. Meanwhile, China's economic challenges continue to cast a shadow over the broader emerging market landscape. Market participants are closely watching for any signs of policy support or economic improvement that could potentially reverse the current downward trend.
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