Emerging markets ended a volatile quarter with China’s plunging economy, spiking US yields and rising oil prices sparking the worst decline in stocks in a year.
Despite a rebound on Friday, stocks saw a $470 billion wipe-out, currencies posted back-to-back quarterly losses and sovereign-risk premiums hovered at a three-month high. It’s now clear that expectations at the start of the year for a rally in Chinese markets and outperformance by emerging markets over developed markets have not panned out.
“The EM rates and EMFX carry trade has been derailed by the relentless move up in US rates,” Citigroup Inc. strategists including Dirk Willer wrote in a note to clients. “With US rates trading as if they still are in a bear market, we are cautious in the short term until we see signs of US weakness.”MSCI’s stock index rose 0.8% on Friday as Chinese technology stocks came back in favor. That trimmed quarterly losses to 3.7%, its worst performance in a year.
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