All asset classes in developing countries are on track to end the year with negative returns amid global risk flight, with valuations reduced by billions of dollars.
The losses in actions in emerging markets surpassed those seen during the height of the pandemic in 2020, while currency devaluation and falling hard-currency bonds also overshadowed the lows during the global crisis in 2008.
The asset tumble comes on the back of a deteriorating global growth scenario as a result of aggressive increases in interest rates. fees with the aim of stopping the inflation.
Furthermore, given the geopolitical tremors since the invasion of ukraine for the Russia and increasingly strained US-China ties, investors have turned away from riskier markets.
“Emerging markets remain under pressure due to rising cost of capital, draining global liquidity and various external headwinds, ranging from the adverse effects of the war in Ukraine to poor economic performance in China,” said Adriaan du Toit, Director of emerging markets economic research at AllianceBernstein in London. “Add the lingering strength of the US dollar to the equation, and it becomes even more difficult to see relief for emerging market asset prices in the short term.”
The Bloomberg Emerging Market Hard Currency Index, a flagship debt benchmark that includes dollar-denominated bonds from sovereign, quasi-sovereign and corporate issuers, is down 22% from its September 2021 high. peak since 2008, and equates to a decrease in the market value of the index of about US$670 billion. Year-to-date, the indicator lost 5%, the worst performance since 1994.
The strengthening of dollarthe relentless fall of the yuan and the war in Ukraine have been a toxic mix for emerging market currencies.
MSCI’s Emerging Markets Currency gauge is down about 4% since late August, on track for its biggest monthly loss in over a decade. The index has fallen about 9% since January, surpassing the record 8.7% drop recorded during the 2008 crisis.
Interest rate hikes in several countries such as Indonesia, South Africa and Hungary failed to reverse the devaluation of their coinsleading to interventions in emerging markets.
The coins of Europe Eastern, along with the rand, are seen as the most vulnerable to war in Ukraine, according to Société Générale strategist Phoenix Kalen.
“Geopolitical risk must remain on high alert, particularly as Russia’s mobilization begins, attacks between Russian and Ukrainian forces intensify, and Russia moves to annex Ukrainian territory,” Kalen said. “This war will escalate dramatically, and a reversal of fortunes for the most vulnerable currency crosses is unlikely in the short term.”
The MSCI index for emerging market equities has already lost 29%, on track for its worst year since 2008. Last month alone, the gauge shrank by about $1.68 trillion in market value. The relative strength index on the monthly chart is below 30, a level that equates to “oversold”.
“The global context remains stagnant in a very fragile balance between fears of a global growth slowdown and macro data that still shows resilience in the US and elsewhere,” said Cristian Maggio, head of portfolio and ESG strategy at TD Securities. “Repeated market corrections are not only possible, but also very likely to occur again.”
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Source: Moneytimes
I am a journalist with over 6 years of experience working in the news industry. I currently work as an author for Global Happenings, and my coverage focuses on Technology news. I have written for various publications, including Reuters, The New York Times and The Guardian.