Global Tech Outage and Market Uncertainty Hit Emerging Markets

Emerging markets experienced significant declines as a global tech outage and uncertainties surrounding U.S. elections weighed heavily. MSCI's index fell to a two-week low, driven by a sell-off in tech-heavy indexes. The economic outlook in countries like China, South Africa, and Nigeria also contributed to market volatility.

In a grim end to the week, an index tracking bourses in emerging markets pulled back to a two-week low on Friday, while investors grappled with a global tech outage, uncertainty around U.S. elections and a limping Chinese economy. MSCI's index tracking emerging markets equities eased 1.6% to a two-week low on Friday, after hitting a two-year high.

The index was on track for its sixth straight session in losses and was set for a weekly drop of over 3%, its biggest weekly loss in nearly two months. Most of the losses were driven by a sell-off in tech-heavy indexes in Hong Kong, Taiwan and Korea. A cloudy outlook about the upcoming U.S. elections and the lack of enthusiasm around China's policy pledges at the end of the 'Third Plenum' also stoked risk aversion.

"There's a bit of a pullback because it has been a long run so far this year and there is some uncertainty about U.S. elections which depends on if Donald Trump will come back as president again and his policies could lead to some resistance," said Ruchir Desai, fund manager at Asia Frontier Capital. Desai said if tariffs against China were to increase under a second Trump presidency some Asian economies, including Vietnam, Bangladesh, Cambodia, and Sri Lanka, could be net beneficiaries.

Meanwhile, the pullback extended to South Asia, where India's main indexes dropped 1% and 0.9%, as focus was on an upcoming federal budget, with economic analysts anticipating steps to boost jobs and incomes. Separately, the local central bank's governor said real and neutral rates cannot be determinants of monetary policy a day after the regulator pegged a higher natural interest rate.

South Africa's rand weakened 0.4% and the main stock index dropped 0.8%. Late on Thursday, President Cyril Ramaphosa pledged to revive the flagging economy by resuscitating factories and farms, building roads and seizing the opportunities presented by green energy. A global tech outage disrupted operations in multiple industries, with airlines halting flights, some broadcasters going off the air and everything from banking to healthcare taking a hit.

An index tracking eastern and central European equities lost 1.3%, while Turkish and Israeli stocks shed 0.1% and 0.8% respectively. Ukraine's hryvnia firmed 0.6% against the dollar, though hovering near record lows. The government proposed its first wartime hike in taxes to fund its conflict with Russia.

Nigeria's naira weakened 0.8% against the euro, while yield on 2-year sovereign bonds inched up 11 basis points (bps). The local central bank sold the dollar on Thursday to prop up the naira, saying that distortions in the retail market was feeding into parallel markets and widening the country's exchange rate premium.

(With inputs from agencies.)