Emerging market stocks recoup some of losses in Monday rout

BREAKING NEWSAugust 6, 2024 at 7:04 PM UTC

TLDR

Emerging market assets rebounded after previous losses, with Asian stocks, excluding Japan, rising by 1%.
MSCI's index of emerging market stocks increased by 1.2% following a significant sell-off, but caution persists among investors.
Market sentiment reflects concerns over a potential U.S. economic recession, tech earnings disappointments, and geopolitical uncertainties, leading to a likelihood of a 50 basis point Fed rate cut in September.

Emerging market assets recouped some losses on Tuesday after a significant sell-off in the previous session, though gains were tempered by a stronger dollar and continued concerns over global economic growth.

Emerging market stocks in Asia, excluding Japan, rose 1%, aided by a sharp recovery in the Nikkei. MSCI’s index of emerging market stocks rose 1.2% after experiencing its worst day in over two years on Monday.

The previous session saw a combination of concerns about a potential U.S. economic recession, disappointing tech earnings, and geopolitical worries prompting investors to flee risk assets. Despite the recovery, some caution remained, with investors pricing in an 80% chance of a 50 basis point interest rate cut from the Federal Reserve in September, down from 86% on Monday.

Key Takeaways

Lower interest rates or policy easing in the US typically benefits emerging market stocks and currencies. The Japanese yen benefited significantly from risk aversion on Monday, which led to an unwinding of carry trades that adversely affected many high-yielding emerging market currencies. However, the yen slipped on Tuesday, as a rebound in the U.S. dollar continued to exert pressure on emerging market currencies. Kenya’s shilling edged down 0.2% against the dollar ahead of a monetary policy announcement.

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