by Matthew Burgess
A rally in emerging-market assets stalled in Asia Friday as trade tensions with the US resurface and with key data due next week.
A Bloomberg gauge tracking developing nation stocks edged lower Friday, but still on track for a 2.2% gain this week, which would be the biggest since June. MSCI’s gauge for emerging-market currencies was little changed, and is sitting on a 0.6% rally this week as the greenback slid.
Investors are on edge into the weekend as trade tensions between the US and India rise, while Trump has signaled fresh sanctions on Russia may land as early as Friday. Treasury Secretary Scott Bessent said that China levies “could be on the table” over the buying of Russian oil. Data next week may also test expectations the Federal Reserve will ease policy in September.
“There could be some caution heading into the weekend, but generally markets are waiting for the US inflation print next week,” said Eddie Cheung, a senior emerging markets strategist at Credit Agricole CIB. “That is the near-term risk to the ‘weaker US dollar’ narrative which has fueled EM FX.”
The consolidation comes after EM’s strong rally this year, fueled by a weakening greenback as questions mount over US policy. Bloomberg’s gauge of emerging-market equities has rallied almost 15% this year, outpacing the 11% rise in developed market peers. MSCI’s index of EM currencies has added 6.4% this year, as Latin American and Eastern European currencies surged.
Still, traders anticipate the rally may extend. A renewed push to end the Russia-Ukraine war may help underpin gains in Eastern Europe, while signs of a slowing US economy and a ratcheting of bets on US policy easing weighs the dollar.
“We still look for structural US dollar weakness over the medium term,” said Lloyd Chan, a strategist at MUFG Bank in Singapore. “This, along with market pricing for 130bps US rate cut through end-2026, could provide further tailwinds for several emerging market stocks and currencies.”
Copyrigyht Bloomberg News
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