EM assets fall as Mideast tensions keep oil above $100

Emerging market stocks and currencies declined on Thursday as elevated crude prices and ongoing geopolitical tensions weighed on investor sentiment.

Continued restrictions on shipping through the Strait of Hormuz and the absence of US-Iran negotiations kept oil prices above $100 a barrel, fuelling concerns of a potential global economic slowdown.

MSCI’s index tracking emerging market equities fell 0.4%, while a parallel index for currencies slipped 0.2%.

Investors moved towards the safe-haven US dollar, adding pressure on risk-sensitive assets.

Central banks step in to stabilise currencies

Policymakers across emerging markets responded with defensive measures to limit currency volatility.

Indonesia’s central bank said it would continue intervening in currency markets to stabilise the rupiah, which dropped to a record low of 17,315 per dollar.

The currency also logged its sharpest daily decline since September.

In India, the central bank stepped in to support the rupee by selling dollars, according to traders cited in a Reuters report.

The rupee remained close to record lows, hovering near 94 per US dollar.

Higher energy costs are expected to pressure corporate earnings in India.

HSBC downgraded Indian equities to “underweight” from “neutral”, marking its second downgrade within a month.

Benchmark indices fell around 0.7% each during the session.

Asia currencies weaken despite policy tightening

Elsewhere in Asia, the Philippine peso fell 0.4%, even after the central bank raised its key interest rate to 4.50% to contain inflation driven by rising energy prices.

Vietnam also indicated that inflation could exceed its target this year.

Geopolitical tensions keep markets on edge

Despite a ceasefire in parts of the Middle East, uncertainty remained high.

Hostilities between Israel and Hezbollah continued in Lebanon, while the United States enforced a strict blockade of Iranian ports, drawing criticism from Tehran.

“The energy price shock will of course worsen the current account positions of net-energy importing EMs,” said Shilan Shah, deputy chief emerging markets economist at Capital Economics, as quoted in a Reuters report.

He added, “But unlike other recent energy shocks such as the start of the Ukraine war, the external balance sheets of most EMs are starting from a position of strength, limiting the risk of large currency adjustments.”

Demand for financial support rises

The strain from geopolitical developments has led several countries to seek financial support.

US Treasury Secretary Scott Bessent said that multiple allies in the Gulf region and Asia have requested currency swap lines to manage the impact of energy shocks and broader fallout.

International bonds from the United Arab Emirates, one of the countries requesting support, were slightly lower.

Mixed signals from Europe and AI-driven sectors

Some relief emerged in parts of emerging Europe.

Russian oil resumed flowing through the Ukrainian section of the Druzhba pipeline after a prolonged halt.

Hungary subsequently lifted its veto on a 90 billion euro EU loan to Ukraine.

Ukraine’s international bonds gained more than 0.6 cents on the dollar.

Despite broader market weakness, technology stocks linked to artificial intelligence continued to attract investor interest. South Korean shares hit a record close, supported by strong chipmaker performance.

SK Hynix reported record quarterly profits and projected that demand for artificial intelligence chips would exceed supply capacity.

The stock has risen 88% this year, alongside gains in Samsung Electronics, which also issued optimistic earnings guidance earlier this month.

JP Morgan also said Saudi Arabia and the Philippines will be added to its local currency emerging market debt index next year, highlighting continued structural developments in the asset class.

Meanwhile, political uncertainty in Romania remained in focus after the ruling coalition’s largest party withdrew support for Prime Minister Ilie Bolojan.

The Romanian leu, however, remained stable.