Emerging Market Stocks Enter Correction as Traders Assess US Policies -

The index for emerging-market stocks dipped into correction territory on Thursday, as a sustained sell-off was fueled by uncertainties around U.S. policies and growth forecasts in China.

The MSCI EM stock index decreased by 0.4%, reflecting a total drop of 10% since hitting its peak on October 2, which officially marks the onset of a correction. The decline was largely driven by the performance of Samsung Electronics Co Ltd and Taiwan Semiconductor Manufacturing Co, as new semiconductor trade restrictions imposed by the Biden administration threaten to impact nearly all global markets. Learn more about these restrictions here.

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The index, which heavily features Chinese stocks, has experienced significant losses due to disappointing performance in shares related to China’s economy, particularly after government stimulus measures fell short of traders’ expectations.

A related index monitoring developing currencies registered a decrease for the second consecutive day amidst a strengthening dollar.

Assets in the developing world have sharply declined since early October. Despite the Federal Reserve’s pivot toward monetary easing, inflation numbers remained high during October and November, leading traders to expect fewer and smaller rate cuts in upcoming meetings.

For further insights, read: Trade war fears hit rand, sparking biggest drop since June

The election of Donald Trump and the Republican Party has heightened inflation expectations, contributing to rising yields on 10-year U.S. Treasury bonds.

As Trump’s inauguration on January 20 approaches, traders are becoming more cautious, with his expected tariff strategies causing considerable market fluctuations earlier this week.

“There’s too much uncertainty surrounding Trump’s plans to establish any strong convictions for risk assets in either direction,” stated Henrik Gullberg, a macro strategist at Coex Partners.

“Market conditions will remain volatile as we approach the inauguration, responding to Trump’s tweets and public announcements.”

Disappointment over China’s stimulus efforts and the weak start of Chinese equity markets this year have further tarnished investor sentiment. While not fluctuating significantly during the day, Chinese tech stocks are set to experience their most considerable weekly decline in seven weeks.

Chinese markets are also grappling with economic data that indicates slow growth, with inflation falling for the fourth consecutive month.

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As noted by Greg Lesko, managing director at Deltec Asset Management LLC in New York, stocks from Brazil and South Korea have played a role in the decline of the MSCI index, with concerns over fiscal policies in Brazil and the impeachment and arrest of South Korean President Yoon Suk Yeol weighing heavily on those markets.

“I expect the market to remain cautious until there is greater clarity on policy, which should become clearer soon… There are many appealing stocks available, so we foresee promising opportunities, though some patience will be required,” Lesko remarked.

Goldman Sachs strategists have adjusted their projections for returns on EM equities for 2025, lowering their year-end target for the index from 1200 points to 1190 points.

Despite this revision, it still implies a rise from Thursday’s close at 1066 points, as Goldman expects moderate returns primarily driven by earnings growth.

They have expressed overweight positions in markets such as China, South Africa, and Saudi Arabia, while also updating their perspective on Turkish equities.

Weakening Rand

The MSCI’s EM index faced pressure from decreasing values in the Chilean peso, Mexican peso, and South African rand.

In the bond markets, high-yield dollar-denominated debt displayed robust performance, particularly sovereign bonds from Bahrain, Gabon, and Lebanon. The bond market closed at 2 PM New York time in remembrance of former President Jimmy Carter.

Poland launched the sale of €3 billion in bonds to meet financing needs, part of a broader trend of EM debt issuances this year as countries seek funding ahead of Trump’s inauguration.

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