Ugly Month in Emerging Markets May Be a Taste of What’s Ahead

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessUgly Month in Emerging Markets May Be a Taste of What's AheadInvestors’ hopes of a stellar year in emerging markets are being tested by a bruising July that may offer a taste of the headwinds ahead.Author of the article:Abhinav Ramnarayan and Selcuk Gokoluk You can save this article by registering for free here. Or sign-in if you have an account.uhitisiozc)keyt0]l25nv[i_media_dl_1.png Bloomberg(Bloomberg) — Investors’ hopes of a stellar year in emerging markets are being tested by a bruising July that may offer a taste of the headwinds ahead.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountWhile stocks bounced sharply on Friday, a deep skepticism remains among investors over the enormous sums being pumped into the artificial intelligence buildout. Those fears are whipsawing the chipmaking hubs of South Korea and Taiwan, these markets comprise about 45% of MSCI’s emerging equity index, leaving the whole complex hostage to swings in a handful of semiconductor stocks.A fresh dose of that turbulence came on Friday as the Kospi benchmark surged a record 18%, after tumbling by almost the same amount in the previous three days. As chip heavyweights SK Hynix Inc. and Samsung Electronics Co. rallied by as much as a third, the MSCI index notched its best day since 2008.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againYet the AI-led swings are compounding broader macro pressures. Oil prices jumped by a fifth in July as the Middle East war flared up again. At the same time, investors face the prospect of higher US interest rates as doubts emerge over the Federal Reserve’s commitment to battling inflation. Taken together, it’s an “ugly backdrop” for emerging markets, according to Roger Mark, an emerging markets analyst at Ninety One Asset Management. He’s concerned the blockade of the Strait of Hormuz shows no sign of ending as the US-Iran war starts to spread across the Middle East.“There are lots of unknowns and you can paint a picture where things get uglier quite easily,” Mark said. “But from an EM perspective, the main risk is on the energy side: what happens if the energy flows don’t resume and what that means for inflation and central bank behaviour.” Veteran market strategist Ed Yardeni recently downgraded his emerging-stocks stance to marketweight. “Four separate short-term headwinds are converging at once” he said, naming oil prices, a hawkish Fed, dollar strength and AI fatigue.Read: Korean Stocks Surge Record 18% as Tumultuous Week Ends on a HighAfter Friday’s rebound, MSCI’s emerging equity index is about 18% higher on the year. That’s well below the 28% gain notched between January and June, but still more than double the S&P 500’s advance in 2026.Some investors such as Chandan Khanna, a portfolio manager at William Blair Investment Management, see the recent AI selloff as an opportunity. “We’ve just had an air pocket in terms of normalization partly because of retail leverage coming off, which long term perspective is quite healthy,” Khanna said. Many investors will remain cautious. Friday’s bounce is attributed to raft of regulatory measures and signs leveraged exchange-traded fund bets — which exacerbated previous declines — have run their course. While foreign investors bought $5 billion of Korean stocks, locals continued selling, offloading a record $5.8 billion worth of shares. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Treasuries, Inflation PainBeyond equity turmoil, policymakers across the developing world will be watching Treasury markets with unease after the Fed kept interest rates unchanged, despite elevated inflation. The decision raised questions about Chairman Kevin Warsh’s inflation-fighting resolve, sparking a selloff in Treasuries. Some investors expect further increases in 10-year yields, which are already up some 65 basis points since the war started. Higher yields in developed nations usually erode the appeal of emerging debt by narrowing the premium investors demand for the additional risk. That spread is now near a record low, according to indexes compiled by Bloomberg. Read: Emerging-Market Debt Is No Longer Worth the Risk: Macro ViewMorgan Stanley strategist Simon Waever says emerging debt will be most vulnerable if the Fed embarks on a sustained tightening cycle because “tight spreads leave materially less protection, particularly for lower-rated sovereigns and weaker corporates.”Meanwhile, inflation concerns are fueling expectations of tighter policy in emerging nations. Derivatives pricing for rate hikes has added 10 basis points on average in the past month, according to UBS Group AG, with more than three hikes seen in some markets like India. That could pressure local-currency bonds, which have returned about 2% this year. A potentially greater risk is the weather-roiling El Niño, the strongest in more than 75 years, according to UBS strategist Manik Narain, who notes that food prices are a bigger inflation driver for poor nations than fuel. He’s advising clients to be “very selective” in emerging bonds.Trade data from China and South Korea for July will show demand for AI-related chips and equipment — a support for growth and possibly a reassurance for volatile tech shares.Inflation data across EM economies including Turkey, Mexico, Peru, Chile and IndonesiaBrazil and Mexico policy rate decisionsColombia monetary policy report and policy meeting minutesNotice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.