Election fever dominates emerging markets as stock rally stalls

Emerging-market investors are searching for direction after an eventful first quarter left stocks where they began the year and currencies sensitive to US trade rhetoric.

 

A heavy political agenda in Latin America and a slew of inflation reports signal increased volatility.

 

As election fever grips Brazil and Mexico, money managers will look for clues that market-friendly candidates can wrest the initiative from leftist leaders. Even if they do, the broader picture for riskier assets depends on the outlook for the US dollar. Investors will be tracking US President Donald Trump as he turns his attention to his border-wall plan from tariff increases.

 

“As we head into a new quarter following the Easter weekend, emerging-market investors will continue to watch closely the performance of the US rates markets and the dollar for broad market direction,” said Paul Greer, a London-based portfolio manager at Fidelity International. “Concerns around geopolitics and US-China trade frictions have cooled.”

 

A rout in technology stocks sent the emerging-market benchmark index to a second week of losses, cutting the gauge’s gains this year to about 1 per cent. Currencies fared better, with a 0.4 per cent increase last week, marking the longest streak of quarterly rallies since the 2008 financial crisis. The Bloomberg Barclays EM local-currency government bond index advanced 0.8 per cent last week.

 

The fifth quarterly gain for developing-nation assets masks the sputtering of their two-year rally. Stocks lost $100 billion in value last quarter, the first decline since 2016, and witnessed the largest passive-fund outflows in almost three years. Currencies closed virtually at the same level as at the end of January and the sovereign-bond risk premium jumped back above 3 percentage points.