Emerging-market stocks experienced a dramatic downturn on Monday, erasing their gains for the year in one of the most significant declines since the global financial crisis. The sell-off was sparked by the impact of stringent US tariffs, which prompted widespread market fears and a rush toward safer assets.
The MSCI Inc. index, which tracks up-and-coming equities, plunged as much as 8.4% during the trading day, marking its largest intra-day drop since 2008. Key stock benchmarks in mainland China, Hong Kong, South Korea, and Taiwan saw substantial declines. In tandem, the MSCI Emerging Market Currency Index also dipped, while credit risk in Asia spiked to levels not seen since 2020.
“This is indiscriminate selling,” said Xin-Yao Ng, a fund manager at Aberdeen Investments. He added that while cash levels have increased, “there’s a limit to how much I can increase. Generally, I’m required to be invested.”
The ongoing trade tensions, particularly the threat of reduced US growth due to tariffs, are igniting widespread market repricing. Economists, including those at Goldman Sachs Group Inc., are raising concerns about the increased likelihood of a recession in the United States, which could reverberate globally.
China, which faces some of the toughest tariffs, has vowed to retaliate with countermeasures. In response to the escalating trade war, the People’s Bank of China lowered its daily reference rate for the yuan, bringing it to the lowest level since December. There is growing speculation that China might devalue the yuan against the dollar, breaking its previous commitment to maintaining a stable currency.
MSCI’s Emerging Market Currency Index fell to its lowest point in a month, with the Mexican peso and South Africa’s rand suffering the most, with the latter hitting its weakest level in a year.
In Indonesia, where markets are closed for a week-long holiday, the central bank preemptively intervened in the offshore rupiah market. Officials have pledged to take aggressive action when the market reopens on Tuesday to stem potential turbulence.
“We’ve seen our fair share of volatility within Asia,” said Jason Pang, a currency and bond portfolio manager at JPMorgan Asset Management. He told that the current conditions support the need for potential rate cuts.
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