July 25 (Bloomberg) — Emerging-market stocks slumped to the lowest in five weeks on Thursday as China’s second monetary-easing move this week failed to soothe concern over the country’s economic slowdown. Global jitters around artificial intelligence added to pessimism.
- MSCI’s EM equity benchmark falls for ninth time in 10 days
- Latin American currencies recover after yen rally fades
MSCI Inc.’s benchmark for EM equities dropped for the ninth time in 10 days and is on track for its first monthly decline since January. Chinese stocks, both in Shanghai and Hong Kong, underpinned the losses on skepticism that stimulus measures will help to revive the world’s second-biggest economy.
The outlook for stocks worldwide has weakened over the past week as the AI-led rally in the so-called Magnificent Seven stocks in the US stalled. Political risks, especially related to the US presidential elections in November, are adding to the volatility.
“EM assets at large are taking a bit of a beating,” said Helen Given, a foreign-exchange trader at Monex Inc. “Earnings for Q2 globally have been on the softer side through the last week, and as China continues to signal to markets that its economic situation may be a bit more precarious than previously thought, risk assets have been sliding.”
Meanwhile, MSCI’s gauge for emerging currencies gained as much as 0.3%. Latin American currencies recovered after a rally in the Japanese yen lost steam on Thursday. As of 12:00 pm in New York, the Mexican peso and the Brazilian real had erased losses from earlier in the session, when the yen strengthened as much as 1.3%. The yen is one of the main funding currencies for carry trades involving Latin American FX.
China Concerns
China’s economic data has continued to show sluggish consumer demand as the benefits of stimulus measures remain confined to industrial output.
Traders have been looking for a wide-ranging stimulus program from China to revive the economy and support markets. While authorities last week committed to providing the support, investors had expected more to address the property sector’s woes as well as sluggish consumer demand.
The selloff in Chinese stocks follows deepening outflows from US exchange-traded funds that invest in them. The iShares China Large-Cap ETF, which owns shares such as Alibaba Group Holding Ltd and Tencent Holdings Ltd., witnessed the biggest single-day outflow since May 2023. Funds investing in mainland shares also lost deposits.
