Yesterday, stocks in most developing markets fell to their lowest levels in over a month as risk appetite decreased following an unexpected interest rate decision by China. Additionally, Ukrainian bond yields rose after a credit rating downgrade.
The MSCI index, which tracks equities in emerging markets, dropped 0.6 percent, marking its ninth decline in ten days but still maintaining gains of over 4 percent for the year.
A currency index increased by 0.2 percent against a weaker dollar, with investors awaiting economic growth data from the US later in the day.
The People’s Bank of China (PBOC) surprised the market again with an unplanned lending operation at significantly lower rates, aiming to boost the economy. This move unsettled investors, causing Chinese stocks to fall by 0.5 percent.
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Despite this, China’s offshore yuan strengthened to levels last seen in early May, while bond yields remained stable.
Elias Haddad, a senior markets strategist at Brown Brothers Harriman, commented, “The PBOC is trying to support China’s sluggish economic activity. However, unless China addresses its massive debt (over 300 percent of GDP), it is likely to face weaker growth in the coming years.”
Indian stocks continued their five-day decline, poised for their first weekly losses since late May, following tax hikes on equity trading announced earlier in the week. This led to a selloff, with foreign investors selling nearly US$1 billion in equities in the two days after the budget announcement.
South Africa’s rand fell by 0.8 percent, reflecting a decline in precious metal prices, a major export for the country.
In central and eastern Europe, Hungary’s forint weakened for the third consecutive day by 0.1 percent to a two-week low, amid expectations of further monetary easing after an interest rate cut earlier in the week. Concerns also linger due to the country’s high regional debt.
An index tracking stocks in central and eastern Europe dropped 1.5 percent to a more than one-month low.
Investors were also watching ceasefire negotiations between Israel and Hamas, which US officials indicated were nearing conclusion. The shekel remained stable.
Elsewhere, Ukraine’s central bank was expected to announce an interest rate decision. Yields on dollar bonds increased by 28 basis points after Fitch downgraded the country’s credit rating further into default territory, citing a recent agreement to restructure US$20 billion of international bonds.
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