February 3, 2023

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Hard-Landing Dread Eclipses Brief Rally in Emerging Stocks

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(Bloomberg) — The nascent rebound from a two-year low in emerging-market stocks is faltering on concern the Federal Reserve and other global policy makers will fail to orchestrate a soft landing for the world economy. 

“It’s too early to say this is the bottom. Too early to say the only way is up,” said Wei Li, global chief investment strategist at BlackRock Inc. “We need to see a dovish pivot from the Fed” before buying-the-dip returns, she said.

The MSCI Emerging Markets Index has rebounded 7.3% since hitting a two-year low on May 12, turning positive last month after the longest losing streak in four years. So far in June, however, the stocks gauge is again trailing developed-market peers.

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Fed Chair Jerome Powell warned last month that the US will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat. His tough stance was supported on Friday by better-than-expected US data that signaled economic optimism even as monetary support is stripped back. Still, concern about the world’s economic outlook is keeping a lid on emerging-market stock valuations.

State Street Global Markets said a bigger rally in developing-market equities may not be on the cards this year, while Goldman Sachs Group Inc. said investor focus is on risks to growth as central banks act to cool surging prices.

The MSCI gauge has dropped 14% this year, roughly in line with dollar-term returns from the Stoxx Europe 600 index and the S&P 500. Emerging stocks advanced in May on news from China, which relaxed Covid restrictions and moved toward peace with big tech…

Bloomberg News

2022-06-05 12:24:39

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