Emerging-market investors faced a growing roster of challenges on Monday from looming debt defaults in China to a blast of government criticism of Russia’s central bank and unexpected primary vote win for a populist candidate in Argentina.
(Bloomberg) — Emerging-market investors faced a growing roster of challenges on Monday from looming debt defaults in China to a blast of government criticism of Russia’s central bank and unexpected primary vote win for a populist candidate in Argentina.
MSCI Inc.’s equity benchmark traded near a five-week low and its currency counterpart near the lowest since May, reflecting investors’ nervousness that country-specific risks are adding to tightening global monetary conditions to undermine the outlook for developing nations. The yuan and Chinese stocks dominated the selloff, while the ruble tumbled past 100 per dollar in a sign of how international sanctions are choking the Russian economy.
Read More: China Shadow Banking Giant Alarms Investors With Missed Payments
Just as emerging markets looked ahead to easier financial conditions as a cycle of interest-rate hikes draws to a close, China’s economy, a motor for growth across the developing world, is sputtering.
Risks of further contagion from the country’s property slump dealt a further blow to sentiment already hit by last week’s disappointing economic data. Meanwhile, news from the world’s second-biggest economy that the scourge of missed debt payments has now spilled over into wealth management also marred the weekend for traders.
The dollar wasn’t doing much on Monday, but most Asian emerging-market currencies slid against it as the yuan drifted toward its 2023 low.
Read More: Housing Slump Fuels China Credit Stress – in Six Charts
As Europe woke up, a column for Russia’s state new agency Tass took aim at the central bank in a rare bout of criticism of its policies by the Kremlin.
Kremlin Criticisim
President Vladimir Putin’s aide Maxim Oreshkin blamed a “soft” monetary policy for the ruble’s declines and said a strong currency was essential for the country. That counters the central-bank narrative that worsening trade conditions are to blame for the ruble’s slump.
Read More: Putin’s Key Aide Blames Central Bank for Weaker Ruble, Inflation
The Russian currency is the third-worst performer among emerging-market currencies so far this year, with only two currencies, the Turkish lira and Argentine peso, both constantly in the cross-hairs of politicians, faring worse.
The latter seemed set for a big selloff after a populist outsider who once threatened to “burn down” the central bank pulled off an unexpected primary win.
Javier Milei’s early success signals a rejection of the current political establishment that has put the country through years of economic hardship and runaway inflation. The little known congressman identifies as a libertarian and supports dollarizing the economy.
Read More: Argentine Markets Brace for Turmoil on Populist’s Election Upset
Meanwhile, Saudi Arabia is looking to bolster its domestic debt market by issuing Islamic-compliant securities for almost 36 billion riyals ($9.6 billion).
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