Emerging Market Shares Drop for Second Consecutive Day

WASHINGTON, D.C. – Worries about an impending diplomatic row between the United States and China have seen emerging market shares drop for the second consecutive day.

The US House of Representatives recently passed two bills supporting Hong Kong’s supporters, with President Donald Trump expected to put his signature on it. The move is expected to generate harsh reactions from China.

Trump signing the bill into law could also scupper the already fragile trade talks between the two powerful countries. A recent report already stated that a deal could be postponed to 2020 due to China’s demands of a more substantial tariff rollbacks and the US’ own demands.

Nordea senior FX strategist Morten Lund said the “escalation with Hong Kong” could be construed as a stand-in for going to war with China. He added that it will definitely reduce the odds of having any agreement signed before the year ends.

Emerging markets index MSCIEF dropped 0.8% on Thursday. KOSPI shares suffered the most, with the Hang Seng Index (HSI) and China’s SSEC following.

Global markets didn’t fare any better as they were pushed down from a 22-month high that scaled in the past months in anticipation of a promised trade deal. The expectations were also fueled by Trump’s comments last month of a deal being signed by the middle of November.

However, the Russian stock index IMOEX fared a little better. It received a three percent boost for Gazprom after the major gas producer declared it was selling $3.3 billion worth of shares in its second offering for the year.

Despite the drop and the uncertainty, emerging market assets are poised to enjoy their best quarter as central banks bolster financial stimulus in support of a flagging world economy.

Even the US Federal Reserve and China’s central bank have gotten in the act. The former reduced interest rates thrice this year while the latter promised more monetary assistance.

Moody’s Investors Service also revised its outlook for Emerging Markets (EM) to take into account the current issues on trade, policies, and politics. In its recent report, the global rating group said the growth of emerging markets slowed down this year. It also noted that the outlook for 2020 has drifted to the negative.

Moody’s stated that it’s not expecting any recession to happen in the major EM economies. It also said this market will continue to enjoy higher growth than developed markets. However, growth rates are lower than expected, especially in large economies like China, India, and Russia.