MSCI Emerging Markets Index Sees Steepest Drop Since 2008

Emerging markets faced a heavy blow as the latest round of US tariffs triggered widespread panic across global equities. The MSCI Emerging Markets Index plunged more than 8% in a single session — its worst performance since the 2008 global financial crisis.

The selloff was broad-based, with major indices in mainland China, Hong Kong, South Korea, and Taiwan recording sharp declines. Investors rushed towards safe-haven assets as fears mounted over an economic slowdown triggered by tariff escalation.

Currency Weakness Adds to Market Pressures

The MSCI index tracking emerging market currencies also slid to a one-month low. Notably, the Mexican peso and the South African rand bore the brunt of the decline, with the rand falling to its weakest level in a year.

Amid the turmoil, the People’s Bank of China (PBOC) set the yuan’s daily reference rate at its weakest level since December, fuelling speculation that Beijing may allow further depreciation in response to economic headwinds.

China Signals Countermeasures

China, which remains a primary target of US tariffs, announced that it would impose countermeasures in response to Washington’s levies. This announcement followed the PBOC’s decision to adjust the yuan’s fixing, hinting at a shift in its stable currency stance to potentially bolster export competitiveness.

Such moves have added to concerns about currency wars, which could further destabilise global financial markets already strained by trade tensions and growth uncertainties.

Rising Recession Fears in the US

Market sentiment was further dampened by growing concerns over the potential for a US recession. Analysts warn that the economic ripple effects of ongoing trade barriers may significantly weaken the US growth trajectory, with global ramifications.

The prospect of a slowdown in the world’s largest economy has prompted a reassessment of risk across global markets, particularly in emerging economies heavily reliant on exports and foreign investment.

Asian Credit Risk on the Rise

Asian credit markets were not spared. Risk premiums jumped the most since 2020 as investors began to reassess corporate and sovereign credit risk in light of deteriorating trade dynamics. The uncertainty over future policy moves in both the US and China has injected fresh volatility into already fragile markets.

Indonesia Takes Pre-Emptive Action

Although Indonesia’s financial markets remained closed due to a week-long holiday, the central bank took proactive steps to cushion the impact of the global selloff. It intervened in the offshore rupiah market on Monday and stated its intention to act “aggressively” once onshore markets reopen.

This pre-emptive measure underscores the scale of concern among policymakers in emerging economies, many of whom are seeking to insulate their currencies and financial systems from external shocks.

Conclusion

The sharp selloff in emerging equities and currencies highlights the fragility of global markets in the face of geopolitical and economic friction. As trade tensions escalate and recession risks grow, emerging economies may face increasing challenges in maintaining stability. Policymakers and investors alike will be closely watching the next developments, particularly any further shifts in currency policies and trade relations.

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