(Bloomberg) -- Emerging markets were hit with losses on Monday as a sour mood globally weighed on risk assets in particular, and trading volumes remained thin because of the holiday season.
MSCI’s gauge for emerging stocks fell 0.4% at close, declining for the third day. The index tracked declines in Wall Street, as a technology stock rally faltered in the final trading sessions of the year. A counterpart gauge for currencies dipped less than 0.1%, with Mexico’s peso leading losses. The currency index is marginally in the red for 2024.
Emerging assets are set to close the year against a challenging backdrop. Traders expect Donald Trump’s return to the White House to bring about more dollar strength and inflation — likely derailing monetary easing in the US.
“It’s a very challenged asset class with a galloping US dollar,” said NWI Management’s chief investment officer Hari Hariharan. “Accident avoidance will be challenging and it’s a tough way to make a living.”
Latin American currencies weakened, with the Mexican peso falling as much as 1.8% amid thin liquidity and speculation that the country’s central bank could pick up the pace of rate cuts next year. The peso was the worst-performing emerging currency on Monday.
Also in the region, Brazilian markets are wrapping up a difficult year in the last trading day of 2024 in the local market, as investors grew increasingly skeptical over the government’s commitment to fiscal discipline.
On Monday, Brazil’s real reversed losses after the central bank intervened again in the spot market, selling $1.8 billion. While the monetary authority has spent more than $20 billion in reserves in two weeks to curb a selloff, the real sank 21% against the dollar this year — the worst-performing major currency.
Meanwhile, benchmark stock indexes for both Brazil and Mexico are among the year’s worst primary equity indexes in dollar terms.
“Appetite for Latin American assets has decreased mainly on the back of country-specific uncertainties, including concerns over Brazil’s fiscal outlook and Mexico’s constitutional reforms,” said Nenad Dinic, an equity strategist at Bank Julius Baer in Zurich.
Elsewhere, the Turkish lira was among the developing world’s laggards as comments by President Recep Tayyip Erdogan on interest rates fanned concerns about a return to the unconventional monetary policies he has espoused in the past.
Erdogan’s comment that interest rates would definitely fall next year and that “2025 will be the mark year for this” came after Turkey’s central bank cut its policy rate for the first time since 2023. Analysts now expect rates to fall at every policy meeting in 2025, despite officials cautioning against an uninterrupted easing cycle.
South Korea
Earlier, South Korean stocks dropped as much as 0.6%, with Jeju Air Co. touching a record low after one of the carrier’s aircraft crashed on Sunday, killing 179 people.
The crash came amid intense political turmoil that’s seen two leaders impeached in two weeks. On Monday, investigators sought a warrant to arrest the impeached Yoon Suk Yeol who has defied summons to appear for questioning. The won currency remained in the red against the dollar, having briefly gained after authorities pledged to stabilize markets.
Analysts at Citigroup Inc. said the constitutional court would likely uphold Yoon’s impeachment, potentially leading to a presidential election in May. This means political uncertainty could stay “higher for longer due to differing incentives of political parties on the timing of an election,” they added in a note.
--With assistance from Inci Ozbek and Vinícius Andrade.
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