Emerging Markets Experience a Holding Pattern
Most emerging-market stocks and currencies moved in a holding pattern on Tuesday, following an overnight Wall Street selloff. This came as Hungary stepped into the spotlight ahead of what could be its first rate cut since 2024. The MSCI’s index tracking EM stocks inched up 0.4%, while the currency equivalent was flat.
Hungary’s Rate Cut Expectations
The real test is for the forint, as traders are betting that the central bank will restart its easing cycle with a 25-basis-point cut. This would take the base rate down to 6.25% later in the day. Hungarian stocks fell 1%, while the forint slipped 0.6% against the euro. For months, the forint has been one of the carry-trade favorites in EM, buoyed by Hungary’s position as one of the EU’s highest interest-rate holdouts.
Impact on the Forint
But that tailwind could be tested. The currency has backed off its strongest levels in more than two and a half years this month. This is because inflation prints increasingly hint at a cooling economy, and as investors begin to shift from "high rates for longer" to "rate cuts are coming." All the important metrics and market developments suggest that the start of the rate-cutting cycle is imminent, according to Frantisek Taborsky, EMEA FX & FI strategist at ING.
Market Developments
Across the region, a gauge tracking central and eastern European equities fell over 1%. Elsewhere, Chinese stocks climbed about 1% after Beijing kept benchmark lending rates unchanged for a ninth straight month in February. In Nigeria, the naira traded at one-week lows against the euro ahead of the country’s own rate decision on Tuesday. Lagos stocks were on track for their best month since 2024.
Global Market Trends
Global investors have been on a diversification path away from U.S. assets, unnerved by lofty tech valuations and the broader uncertainty around AI-driven disruption. That caution showed up overnight on Wall Street, where stocks closed sharply lower, spilling over across emerging markets on the day. Equities in Mumbai, Jakarta, Hong Kong, and Prague were all down about 1% each.
Market Reactions
Confusion about President Donald Trump’s tariffs triggered investors to seek safety. Markets with strong links to gold have found extra support, with South Africa seeing a notable rally. Johannesburg stocks were poised to notch a 14th straight month of gains, and the rand was heading for a fourth consecutive monthly advance. Attention turns to the national budget due this week. On the day, South African stocks slipped 0.3%, and the rand was flat.
Asian Equity Markets
Asian equity markets such as South Korea and Taiwan, which are seen as especially sensitive to Nvidia’s results, jumped more than 2% each ahead of the AI bellwether’s earnings, due Wednesday. Fresh data showed the leading business cycle indicator fell 1% month-on-month in December.
Conclusion
In conclusion, emerging markets are experiencing a mix of trends, with some countries like Hungary facing rate cut expectations, while others like China and Nigeria are dealing with their own economic challenges. Global investors are diversifying away from U.S. assets, seeking safer options. As the markets continue to evolve, it will be interesting to see how emerging markets respond to these changes and how they will impact the global economy.
