• Monday, March 04, 2024
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BusinessDay

Emerging market stocks gauge falls to 4 year low

emerging-markets

Last week outflows from emerging market equity funds continued for a fifth week, pushing the total outflow for the year to $31.9bn.

Drooping emerging market currencies have roiled markets and helped spur outflows, and the situation was compounded last week by China’s decision to allow its currency to devalue.

Large outflows in turn are putting further pressure on currencies, creating a negative feedback loop.

The JPMorgan Emerging Markets Currency Index has fallen to its lowest level since it was founded in 2000.

Hong Kong listed stocks, which account for a large bulk of the MSCI index, do not paint a pretty picture.

The Hang Seng Index is down 0.7 per cent today and has dropped 10 per cent since its year high in May.

Although Chinese A-shares are not included in the MSCI EM Index, the country’s economic issues have catalysed many of the major problems hurting emerging market stocks and encouraging outflows.

Stagnating growth in China, underscored last week by a slew of poor data and the decision to allow the currency to devalue, has raised concern for emerging market corporates, which count China as a key export destination.

In addition, there are fears that a weaker renminbi could improve the competitiveness of Chinese corporates, giving them a leg up over emerging market rivals.

South Korea’s Samsung, the company with the largest weighting in the index, slumped 3.2 per cent to a 10 month low as it comes under pressure from Chinese rivals.

Taiwanese stocks, which make up 12.5 per cent of the MSCI index, have fallen heavily recently and the Taiex index has dropped to its lowest level since November 2013.

Korea, which constitutes 14 per cent of the index, has seen its KOPSI index droop to a six month low.

The FTSE Bursa Malaysia KLCI has slipped 10 per cent in August alone and is down 1.5 per cent today to its lowest level since May 2012. The Jakarta Composite Index is also at a one year low.

The devaluation of the renminbi has heightened volatility in currency markets and helped lubricate the slide of many emerging market currencies which had already been pushing multi year lows before last week.

Malaysia’s ringgit also weakened as much as 1.2 per cent to Myr4.1312 per US dollar, its lowest level since the Asian financial crisis in 1998.