Aug 6 (Reuters) – Emerging market assets recouped some losses on Tuesday after a torrent of selling in the prior session, though a stronger dollar and continued concerns over global economic growth kept gains in check.
MSCI’s index of emerging market stocks rose 1.2% after its worst day in over two years on Monday, when a combination of concerns about a U.S. economic recession, disappointing tech earnings and geopolitical worries saw investors flee risk assets.
Emerging market stocks in Asia outside Japan rose 1%, helped by a sharp recovery in the Nikkei.
Still, some caution remained, with investors pricing in an 80% chance of a 50 basis point interest rate cut from the Federal Reserve in September, down from 86% on Monday. Policy easing in the U.S. typically benefits emerging market stocks and currencies.
“Large stock market movements often mean that investors are looking for answers to one or more questions, so even if the day looks like the situation is improving, it is best to assume that it will continue to be nervous for some time to come,” Marcus Widén, economist at SEB said.
The Japanese yen was a key beneficiary of risk aversion on Monday, which saw an unwinding of carry trades that hit many high-yielding emerging market currencies. The yen slipped on Tuesday, though a rebound in the U.S. dollar continued to weigh on EM currencies.
“Higher interest rates in Japan and expectations of greater and faster expectations of interest rate cuts in the U.S. changed the conditions for carry trades,” Widen added.
Turkey’s lira touched a fresh record low of 33.47 to the dollar, while the South African rand slipped 0.2%.
Malaysia’s ringgit lost over 1% against the dollar after surging over 2% on Monday. The Mexican peso was also down on the day after the carry trade favourite fell to a two-year low.
Among equities, Turkey’s Bist 100 rose 1.4% and the Prague bourse rose after falling over 4% the session prior.
Saudia Arabia’s benchmark index gained 1.8%, with Saudi Aramco rising 2.2% after reporting a second-quarter net profit of 109.01 billion riyals.
Central European currencies weakened against the euro, with the Czech crown, Polish zloty and Hungarian forint slipping between 0.1% and 0.3%.
Meanwhile the International Monetary Fund said it was “fully committed to Bangladesh” after Prime Minister Sheikh Hasina resigned and fled the country following student-led protests.
Kenya’s shilling edged down 0.2% against the dollar ahead of a monetary policy announcement.
(Reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Christina Fincher)
