(Bloomberg) -- Emerging-market stocks headed for the biggest drop since the Aug. 5 global slump as China’s economic woes and approaching risks including the U.S. Federal Reserve’s Jackson Hole conference and earnings from Nvidia Corp. left investors cautious.
The MSCI Emerging Markets Index fell for only the third time since that volatile first Monday of August, pulling back from an almost nine per cent rebound. Technology stocks led the losses, taking their cues from the U.S. market, with traders awaiting Nvidia’s earnings for answers in the debate over whether the craze for artificial intelligence is overdone. Chinese stocks fell both on the mainland and in Hong Kong amid signs global investors are pruning their exposure to the country.
While EM stocks are heading for a monthly gain, investors remain on the edge as U.S.-market gyrations and the November presidential election weigh on sentiment. An interest-rate cut by the Fed next month is priced in, but the focus is turning to the underlying economic rationale for the easing. If rate cuts are necessitated by a sharp deceleration in U.S. growth, they could still leave investors unwilling to take on emerging-market risk.
“The general sentiment is still risk-off given the uncertainties ahead — which would include U.S. election noise, geopolitical tensions, slowing U.S. growth, and elevated earnings-growth expectations,” said Vey-Sern Ling, managing director at Union Bancaire Privee in Singapore.
Information-technology stocks accounted for 70 per cent of the MSCI gauge’s losses Wednesday, with consumer-discretionary stocks that include e-commerce companies accounting for another 13 per cent. Small gains for consumer-staple and commodity stocks failed to offset the tech declines.
JD.com Inc. plunged 8.7 per cent in Hong Kong as Walmart Inc. sought to dispose of its stake in the Chinese e-commerce firm. That triggered a selloff across Chinese stocks as the move pointed to concerns over the country’s consumption outlook as well as waning confidence in its equity market.
Overnight data from the U.S. showed that buyers of exchange-traded funds continued to pull money out of Chinese mainland stocks. The Xtrackers Harvest CSI 300 China A-Shares ETF witnessed the single-biggest net outflow since Aug. 8, extending a run without net inflows since May 20. The KraneShares CSI China Internet Fund also had withdrawals, as it continued a streak of outflows since June 4.
Chinese stocks are “deeply unloved by the global investment community,” said Ling of UBP. “The stimulus hasn’t been enough to turn the economy and housing market around. Until then, there cannot be a sustained rally.”
Despite the recent rebound, stocks could continue to be volatile at least until the next catalyst for Asian technology stocks in the form of Nvidia’s results on Aug. 29, he said. For China, traders would wait for data confirming that economic growth has bottomed out before sending stocks on a “structural rebound.”
Emerging-market currencies treaded water on Wednesday after the benchmark index rose to a record earlier in the week. The shekel dropped by the most among 32 widely traded emerging and frontier-market currencies after U.S. Secretary of State Antony Blinken left the Middle East without a cease-fire deal between Israel and Hamas.
The South African rand extended losses as bets for a September rate cut built up. However, traders watching real yields received good news as the country’s inflation rate fell to the lowest level in three years.
Meanwhile, the City of Johannesburg was considering raising as much as 2 billion rand (US$112 million) of new debt to address a mounting infrastructure backlog.
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