Emerging market assets recovered some of their losses on Tuesday following a significant sell-off the previous day.
Gains were limited by a stronger dollar and ongoing concerns about global economic growth.
Market Performance
Emerging market stocks in Asia, excluding Japan, increased by 1%, supported by a sharp recovery in the Nikkei. The MSCI index of emerging market stocks rose by 1.2%, bouncing back after experiencing its worst day in over two years on Monday.
Monday’s Market Turmoil
Monday’s session was marked by investor concerns over a potential U.S. economic recession, disappointing tech earnings, and geopolitical worries, which led to a flight from risk assets. Despite Tuesday’s recovery, caution prevailed as investors anticipated an 80% chance of a 50 basis point interest rate cut from the Federal Reserve in September, down from 86% the day before.
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Key Takeaways
Meanwhile, Kenya’s shilling edged down by 0.2% against the dollar ahead of a monetary policy announcement.
Lower interest rates or policy easing in the U.S. typically benefit emerging market stocks and currencies.
On Monday, the Japanese yen saw significant gains due to risk aversion, which led to an unwinding of carry trades, negatively impacting many high-yielding emerging market currencies.
However, the yen slipped on Tuesday as the U.S. dollar rebound continued to pressure emerging market currencies.
