(Bloomberg) -- Emerging-market stocks hurdled toward a technical correction Thursday, falling for a second day as traders fled risky assets on uncertainties over the future of US policies.
Most Read from Bloomberg
-
NYC Condo Owners May Bear Costs of Landmark Green Building Law
-
NYC’s Subway Violence Deters Drive to Bring Workers Back to Office
The MSCI EM stock index dropped as much as 0.5%, putting it on path to register a 10% loss since an Oct. 2 high, which would mark a correction. The slide was led by Samsung Electronics Co. Ltd and Taiwan Semiconductor Manufacturing Co. as new measures planned by the Biden administration are set to expand semiconductor trade restrictions to most of the world.
A similar gauge for developing currencies also fell for a second day as the dollar gained.
Developing-world assets have been in a free fall since beginning October. Despite the start of the Federal Reserve’s monetary easing path, inflation readings have been strong in October and November, leading traders to bet on fewer and lower rate cuts in the coming meetings. Donald Trump and the Republican Party’s election victory have also resulted in higher inflation expectations, pushing 10-year US Treasury yields higher.
Traders have turned even more cautious in the run-up to Trump’s inauguration on Jan. 20, with the outlook for his tariff plans causing wild swings in the market earlier this week.
“There is too much uncertainty with respect to Trump’s intentions to have conviction in either direction regarding risk assets,” said Henrik Gullberg, a macro strategist at Coex Partners. “Markets will be very choppy into the inauguration, and react to Trump’s tweets and commentary.”
Disappointments over China’s stimulus policies and a lackluster start of Chinese stocks to the year have also weighed on sentiment. Chinese tech shares were flat on the day but on track for their biggest weekly decline in seven weeks. Chinese markets were also pressured by data showing the economy is stuck in low gear, with inflation decelerating for a fourth-straight month.
For Greg Lesko, managing director at Deltec Asset Management LLC in New York, stocks from Brazil and South Korea have also helped dragged the MSCI index lower. Those assets have been weighed down by fiscal concerns in Brazil and the impeachment and arrest of South Korea President Yoon Suk Yeol.
“I think the markets will be cautious until we get more policy clarity which should happen soon,” he said. “A lot of very cheap stocks, so we expect good opportunities but will need some patience.”