Emerging-market investors faced a growing roster of challenges on Monday ranging from a populist turn in Argentine voter preferences to looming debt defaults in China and a rare government criticism of Russia’s central bank.
(Bloomberg) — Emerging-market investors faced a growing roster of challenges on Monday ranging from a populist turn in Argentine voter preferences to looming debt defaults in China and a rare government criticism of Russia’s central bank.
MSCI Inc.’s equity benchmark traded near a five-week low and its currency counterpart at the lowest since March, reflecting investors’ nervousness that country-specific risks are adding to tightening global monetary conditions to undermine the outlook for developing nations. Argentine assets seemed set for further losses on Monday after a populist outsider pulled off an unexpected primary win. The country’s dollar debt led declines in emerging markets, while a US exchange-traded fund investing in Argentine stocks fell in New York premarket trades.
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: Argentina’s Dollar Bonds Plunge on Populist’s Election Upset
Growing political risks in Latin America worsen sentiment already impaired by a sputtering of China’s economy. Just as emerging markets looked ahead to easier financial conditions as a cycle of interest-rate hikes draws to a close, risks of further contagion from the country’s property slump compounded last week’s disappointing economic data. Reports showing the scourge of missed debt payments has now spilled over into wealth management also marred the weekend for traders.
Read More: China Shadow Banking Giant Alarms Investors With Missed Payments
The yuan fell to the lowest level since November and Chinese stocks posted the biggest back-to-back losses since April. Russia’s ruble tumbled past 100 per dollar in a sign of how international sanctions are choking the Russian economy. 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: China’s Offshore Yuan Extends Slide to Lowest Since November
Kremlin Criticism
Trading during the early European hours was dominated by a column for Russia’s state new agency Tass that took aim at the central bank in a rare bout of criticism of its policies by the Kremlin.
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.
Brazilian assets were in focus after data showed the economy ended the first half of the year on better-than-expected footing, based on the central bank’s activity index.
Meanwhile, Saudi Arabia was looking to bolster its domestic debt market by issuing Islamic-compliant securities for almost 36 billion riyals ($9.6 billion).
(Recasts with Argentine asset moves, Brazil economic data, yuan plunge)
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