Emerging market stocks ended a four-day losing streak on Monday following the suspension of proposed tariffs on Mexican goods by world’s biggest economy, United States.
The Morgan Stanley Capital International (MSCI) Emerging Market index, which captures large and mid-cap stocks in global emerging markets including Mexico, China, Nigeria, India, South Africa and Egypt, gained 0.46 percent, up 4.3 percent year-to-date.
President Donald Trump announced last Friday (June 7) an indefinite suspension on the planned tariffs on Mexican goods, saying his and administration and Mexican officials have reached a common ground on immigration policy.
The tariff, which would have been effected on Monday (June 10), comprised 5 percent tax on all imported Mexican goods, and would have risen steadily to 25 percent. Trump announced the tariff to persuade Mexico reduce the number of Central American asylum seekers and immigrants arriving at the US southern border.
The United States-Mexico tariff agreement is expected to lower trade concerns weighing on equities in emerging markets, even as the region is feeling the pangs of massive capital outflows on the heels of escalating trade dispute between United States and China.
Portfolio inflows to the region plunged 115 percent to an outflow worth $5.7 billion in May, compared to inflows worth $32.6 billion and $38 billion in March and April respectively.
Debt inflows in May stood at $9 billion, while equities outflows accelerated to $14.6 billion, its highest level since the June 2013 Taper Tantrum, which saw equities outflows jump to $22 billion. Of the $14.6 billion outflows, $7.2 billion, which equates to 49 percent, left China.
Worse still, the David Malpass-led World Bank projected a slowdown in investment growth in emerging markets to 3.9 percent in 2019 on the account of fragile global growth, escalating debt levels and structural constraints, but a rebound is expected in near term supported by easier financing conditions
Nigerian stocks slide 0.36 percent after Monday’s trading session, down 3.5 percent year-to-date. Analysts linked the rout in the Lagos bourse to lack of clear policy direction of the present administration and absence of economic-stimulating reforms that would stir the market.
Equities listed on the Johannesburg bourse have gained 10.89 percent since the start of the year on Monday, despite posting its weakest economic report since 2009, having contracted some 3 percent in three months to March.
Egyptian stocks are up 8.54 percent year-to-date, China’s Shanghai have risen 14.4 percent, with Bombay (India) and Sao-Paulo (Brazil) advancing 10 percent each.
The eased trade tensions between United States and Mexico might have somehow helped emerging markets, but a strong dollar and cut in Chinese Yuan incite pressure on a number of emerging countries’ currencies.
The naira have gained a marginal 0.3 percent relative to US dollar, thanks to Nigeria’s Apex Bank sustained liquidity injection to the foreign exchange market. The Egyptian pound, Indian rupee and Mexican peso have risen 6.9 percent, 0.3 percent, 0.2 percent respectively against the US Dollar, with South African rand and Argentinean peso tanking 5.7 percent and 16 percent.
As the U.S Federal Open Monetary Committee meets next week to decide rate, analysts project a dovish policy stance from U.S highest decision-making body, to foster global growth.
Yinka Ademuwagun, research analyst at United Capital Plc said “Global central bankers are turning dovish and this due to the fact there is a need to spur growth in the world economy. So rate outlook appears dovish in the near term, a tailwind for emerging markets”