How Emerging Market stocks and currencies kicked off the week
Emerging market stocks held at near two-month lows on Monday, showing no signs of reprieve as investors continued to worry about the economic hit from a deadly virus outbreak in China.
As traders in Asia’s biggest economy returned from an extended Lunar New Year break, the benchmark Shanghai Composite index slid 8%, wiping off $420 billion from its value.
MSCI’s index for emerging market equities fell 0.8%, declining for the eighth straight day as the death toll from the coronavirus outbreak rose to 361 in China.
The index ended January with a near 5% decline as risk appetite took a beating during the first month of 2020, mostly driven by geopolitical risks and concerns about the epidemic in China.
“The real concern now is that China’s growth will be heavily impacted by the deadly coronavirus outbreak,” Hussein Sayed, chief market strategist at FXTM, wrote in a note.
“With the number of deaths in mainland China overtaking the 2003 SARS epidemic and the number of cases infected reaching more than 17,000, it is unknown when this epidemic will come to an end.”
Emerging market currencies also kicked off the week on softer footing with the onshore yuan leading declines as it shed more than 1%.
MSCI’s index for emerging market currencies dropped 0.5%.
In an effort to assuage markets, China’s central bank unexpectedly lowered the interest rates on reverse repurchase agreements and injected a total of 1.2 trillion yuan ($173.81 billion) into money markets on Monday.
Russia’s rouble trod water after slipping to two-month lows earlier in the session, as the commodity-linked currency tracked lower oil prices and a global risk-off sentiment.
The Markit purchasing managers’ index (PMI) showed Russian manufacturing activity fell in January for the ninth month running but the pace of contraction slowed and business confidence increased on hopes for stronger client demand.
Currencies in central and eastern European economies including Hungary, the Czech Republic and Romania were flat versus the euro.