EMERGING MARKETS-Stocks drop as chips rout, Fed hike fears dent risk appetite

Reuters2022-11-17

By Susan Mathew

Nov 17 (Reuters) - A sell-off in Asian chip stocks and China COVID fears dragged down emerging market equities on Thursday, with the index down nearly 1% in a second day of declines, while a stronger dollar following robust U.S. retail sales data pressured currencies.

An index of emerging market tech stocks slipped 1.6% and Hong Kong's tech index fell 2.2% after U.S. semiconductor company Micron Technology said it would reduce memory chip supply, warning about excess inventories and sluggish demand.

Rising COVID-19 cases in China also weighed on sentiment amid fears of curbs to control the spread. MSCI's index of emerging market stocks dropped 1.2%.

Among currencies, Asian units led losses with China's yuan

down 0.7%. Elsewhere, South Africa's rand also slipped 0.7%.

"If CNY weakness extends as we expect, we see rising downside risks to goods inflation next year given cheaper Chinese exports," said Alex Loo, macro strategist at TD Securities.

The dollar found a footing overnight after strong U.S. retail sales data boosted the case for the Fed to stay on its tightening path.

Aggressive tightening by the Fed and other major central banks this year has hit risk sentiment due to recession fears, hitting emerging market assets.

In Asia, central bank tightening continued with benchmark interest rates in Indonesia and the Philippines being hiked by 50 basis points (bps) and 75 bps, respectively.

Asian central banks have lagged several other emerging market peers, which started hiking earlier in the aftermath of the pandemic, with Brazil and some central European banks seen ending their tightening cycle soon.

In fixed income, after three days of tightening, emerging market hard-currency debt spreads started widening again.

.

Central European currencies extended their outperformance against a weaker euro, lead by a 0.2% gain in Hungary's forint

.

In Brazil, stocks were seen extending losses as leftist former Sao Paulo Mayor Fernando Haddad emerged as the front-runner to be finance minister, which will likely be seen by investors as the latest sign that President-elect Luiz Inacio Lula da Silva is elevating leftist allies over centrists.

London-listed Brazilian exchange traded funds , as well as European listings for Brazilian blue-chips such as oil major Petrobras , miner Vale and lender Itau Unibanco , slipped between 0.3% and 3.8%.

Meanwhile, Brazilian Vice President-elect Geraldo Alckmin on Wednesday proposed in a constitutional amendment to exempt some 175 billion reais ($32 billion) from next year's budget to pay for social programmes, raising worries about fiscal prudence. For GRAPHIC on emerging market FX performance in 2022, see For GRAPHIC on MSCI emerging index performance in 2022, see

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see

(Reporting by Susan Mathew in Bengaluru; Editing by Mark Potter)

((susan.mathew@thomsonreuters.com;))

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