(Bloomberg) — A selloff in semiconductor stocks pressured Asian bourses and pushed the emerging-market benchmark to the lowest in more than three months, while currencies were mixed on the eve of the Federal Reserve’s decision.
An MSCI Inc. index of developing-world stocks was down 3.5% as of 12:00 p.m. in New York Tuesday, trading at its lowest intraday level since mid-April. The sharp pullback in Asia technology shares offset gains for Latin America equities, while stock markets in Budapest, Prague and Warsaw only saw modest losses.
“Equities are being shaken by the chip rout,” said Simon Quijano-Evans, senior emerging-market strategist at Macro Hive in London. Latin America is less exposed to stocks tied to artificial intelligence, though currencies such as Brazil’s real could be weighed down by lower oil prices, he added.
Oil dropped below $85 a barrel as traders weighed signs of a deescalation of tensions in the Middle East. That boosted the currencies of energy importers such as Chile, where the peso rallied 0.6%, outperforming all its Latin American peers.
US policymakers led by Chairman Kevin Warsh are expected to stand pat on borrowing costs on Wednesday, though the odds of an interest-rate hike have been on the rise. Citadel Securities said the market may be underestimating the extent of the hawkish shift at the Fed, and expects a quarter-point increase tomorrow.
“EMFX is under a little, but not heavy pressure,” said Chris Turner, global head for markets at ING Bank NV in London. High yielders in Latin America and parts of EMEA “do offer some carry protection and one could argue that, even if the Fed does hike, it might be good for long-dated Treasury yields.”
Back in equity markets, South Korean stocks suffered a series of trading suspensions on Tuesday, as the weakness in chipmakers spread across sectors. The benchmark Kospi Index plunged nearly 11%, with Samsung Electronics Co. and SK Hynix Inc. tumbling over 13% each. The turmoil sent trading volume in the $1.3 billion Direxion Daily MSCI South Korea Bull 3X ETF to five times its daily average at some points.
The MSCI Latin America Index rose for a second straight session. In Brazil, softer-than-expected inflation fueled bets the central bank will cut interest rates at next week’s policy meeting, giving an additional boost to stocks.
“If investors believe Warsh will be less hawkish than the market suggests, then Latin America looks very attractive — specifically Argentina and Brazil,” said Malcolm Dorson, a senior portfolio manager at Global X ETFs.
In credit markets, Uruguay is reopening peso- and dollar-denominated bonds due in 2035 and 2037, respectively.
–With assistance from Carolina Wilson.
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