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If emerging markets had their way, this Christmas week would be like any other: quiet, with just a handful of economic releases and low trading volumes. But political dramas playing out in the US are keeping investors on tenterhooks.
The US government shutdown over President Donald Trump’s demand for border-wall funding is likely to last past Christmas. And even though Treasury Secretary Steven Mnuchin tried to reassure financial markets that Federal Reserve Chairman Jerome Powell wouldn’t be ousted, investors are nervous.
Last week, the S&P 500 Index suffered its biggest weekly loss since 2011.
“If equity markets fall further, they’re going to set off machine-based selling,” said Saed Abukarsh, the co-founder of Dubai-based hedge fund Ark Capital Management.
"The other risk is that experienced traders are on holiday, so the ones left will be trigger happy with every new headline. Meanwhile, most traditional risk takers haven’t had a good year, and they’re unlikely to add to their portfolios.”
While the turmoil comes from developed markets this week, there are a handful of events investors will be keeping an eye out for in emerging economies, including Egypt’s interest rate decision, Brazil’s budget balance and Argentina’s economic activity index.
“I can’t see buyers stepping into this market to stem off any selling pressure until January," said Abukarsh. "So if you need to adjust your books for the year-end with any meaningful size, you’re going to have to pay for it.”
Emerging-market currencies and equities declined on Monday in Asia trading, though some assets including the yuan and the baht managed to advance.
For the year, stocks are set for their biggest annual loss since 2011, and bonds and currencies are headed for their first yearly drops since 2015.
