Tech Selloff Sparks Longest Rout in Months for Emerging Stocks

Emerging-market stocks can’t catch a break.

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 U.S. technology shares adds to headwinds that include the rising tensions between Washington and Beijing in the run-up to the U.S. presidential election.

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

“There will be increased uncertainty surrounding U.S.-China tensions as Trump crawls back up in the polls as we approach the election,” 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 Hoping They Won’t Be Shocked by U.S. Elections

The global stock rally is losing steam as geopolitical risks mount ahead of November’s U.S. election and the last leg drivesvaluations 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 justreported a daily record of new cases, while India surpassed Brazil to become the world’s 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 Sept. 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 entireloss for the year. Healthcare and tech companies led the declines on Wednesday as all 11 sub-groups on the MSCI gauge dropped.

“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.

— With assistance by Nicholas Reynolds

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