Emerging market equities cannot take a break.
Already lagging behind in the global risk rally, they just recorded their longest streak of daily losses of daily declines since February as the sell-off of U.S. tech stocks adds to headwinds that include rising tensions between Washington and Beijing ahead of the US presidential election. election.
The MSCI Emerging Markets Index fell for the sixth day in a row on Wednesday, dipping below a key support level – its 50-day moving average – for the first time since May. Investors were spooked by AstraZeneca Plc’s decision to suspend its coronavirus vaccine trial and the Trump administration’s decision to ban certain companies based in China’s Xinjiang region.
“There will be heightened uncertainty around US-China tensions as Trump climbs back up in the polls as the election approaches,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney. “While most emerging market indices aren’t tech-heavy, selling in the sector will still have a decent negative impact.”
The markets will reflect any hiccups in the development of a Covid-19 vaccine as phase 3 trials continue, he added.
Emerging markets hope they won’t be shocked by US election
The global stock rally falters as geopolitical risks rise ahead of the November US election and the final leg drives valuations to levels not seen since the dot-com era. Emerging markets have lagged behind their global peers since March as they struggle to contain the coronavirus. Argentina just reported a daily record for new cases, while India has passed Brazil to become the world‘s second worst hotspot for the virus.
Emerging market equity funds recorded their 30th week of exits since early February during the week ending September 2, according to EPFR Global. Before last week’s pullback, developing country stocks had rebounded from the March plunge, with the benchmark gauge erasing all of its loss for the year. Healthcare and tech companies led the declines on Wednesday.
“Once this correction is completed its course, the next step will have a whole new leadership, led by cyclical stocks such as energy, financials and resources, which are present in emerging markets,” said Naeimi . China will also continue to outperform, providing cushion for the wider index, he says.