Tech sell-off sparks longest rout in emerging market stocks

Bloomberg September 9 | Updated on September 09, 2020 Published on September 09, 2020

The global stock rally is losing steam as geopolitical risks mount ahead of US election

Already a laggard in the global risk rally, they have just registered their longest losing sequence of daily declines since February as the selloff in US technology shares adds to headwinds that include the rising tensions between Washington and Beijing in the run-up to the US presidential election.

The MSCI Emerging Markets Index fell for the sixth consecutive day on Wednesday as investors got spooked by AstraZeneca Plc’s decision to pause its coronavirus vaccine trial and the Trump administrations move to bar some companies based in China’s Xinjiang region.

“There will be increased uncertainty surrounding US-China tensions as Trump crawls back up in the polls as we approach the elections,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney. While most emerging-market indices aren’t tech heavy, the selloff in the sector will still have a decent negative impact.

Markets will reflect any hiccups in the development of a Covid-19 vaccine as Phase-3 trials continue, he added.

Emerging markets

The global stock rally is losing steam as geopolitical risks mount ahead of Novembers US election and the last leg drives valuations to levels not seen since the dot-com era. Emerging markets have been lagging behind global peers since March as they struggle to contain the coronavirus. Argentina just reported a daily record of new cases, while India surpassed Brazil to become the worlds second-worst hotspot for the virus.

Emerging-market equity funds clocked up their 30th week of outflows since the beginning of February during the week ending September 2, according to EPFR Global. Before last week’s retreat, developing-nation stocks had rebounded from the March nosedive, with the benchmark gauge erasing its entire loss for the year. Healthcare and tech companies led the declines on Wednesday as all 11 sub-groups on the MSCI gauge dropped.

Read also: Unswayed by Nasdaq rout, global investors stick to buying the dip


Once this correction has run its course, the next leg up will have brand new leadership, led by cyclical stocks such as energy, financials and resources, which are present in emerging markets, Naeimi said. China will also continue to outperform, providing a cushion for the broader index, he said.

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Published on September 09, 2020
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