Risk aversion sweeps emerging markets, stock markets plunge 1.6%, South African interest rate decision becomes focal point
- On Thursday, most emerging market stock markets fell sharply as investors fled risk assets and awaited clear signals on whether the Iran war could truly de-escalate. The MSCI Emerging Markets Index fell by 1.6%, nearly erasing all of the previous session's rebound gains.
- This month, the index has dropped by more than 10% in total, and its year-to-date gains have narrowed to just 3%, with a strong start to the year largely eaten away. At the same time, the emerging markets currency index also fell by 0.4%, reflecting the persistent rise in risk aversion.
- The South African market is facing double pressure: the stock market fell nearly 2% and the rand weakened by 0.4%. Markets widely expect the South African central bank to keep interest rates unchanged at 6.75%, as inflation is gradually returning to its target range, but economic growth remains weak. Energy-driven inflation shocks are putting the South African central bank and many of its emerging market peers in an increasingly difficult position.
- Poland is considering cutting fuel taxes to ease oil price pressures, but the country already has one of the largest budget deficits in the EU, which limits its policy space. Hungary, meanwhile, announced it will gradually halt gas shipments to Ukraine until crude oil deliveries via the Druzhba pipeline are restored.
- From Warsaw to New Delhi, from São Paulo to Seoul, emerging market economies are taking measures to respond to the month-long geopolitical conflict. With the Strait of Hormuz effectively closed and oil prices surging, central banks across emerging markets have been forced to reassess their policy paths—at the start of the year, some were planning to cut rates, but now they must consider whether the next step should be a shift toward rate hikes.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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