Market Waves: Emerging Economies Feel the Ripples of Global Sentiments

Caution dominated most emerging markets on Wednesday. Hungary's forint dropped due to repeated rate cuts, while India's equities fell after tax hike announcements. Sri Lankan stocks rose following a surprise interest rate cut, revealing diverse economic reactions. Overall market movements reflected global economic uncertainties.

On Wednesday, cautious sentiment dominated most emerging markets, with Hungary's forint dropping for a second consecutive day and investors concerned about India's capital gains tax hikes. Meanwhile, Sri Lankan stocks saw an uptick following a surprise interest rate cut. MSCI's index tracking developing markets' bourses dipped by 0.2%, while a currencies gauge remained broadly flat against the dollar.

In central and eastern Europe, Hungary's forint declined by 0.4% against the euro, hitting a one-week low post the central bank's fifteenth consecutive rate cut amidst signs of easing inflation. Poland's zloty remained flat as the government pledged to reform communication rules with the central bank in budget preparations after the lender's failure to contribute to the state budget.

India's stock indexes were down 0.27% and 0.35% respectively, as traders reacted to the government's increased tax rate on equity derivatives and profits from equity investments announced in their annual budget. According to Jakob Ekholdt Christensen, senior EM strategist at BankInvest, the authorities aim to stabilize surging markets, which has impacted sentiment. Despite recent record highs and over 10% year-to-date gains, the tax hikes pose a short-term challenge.

Elsewhere, Sri Lanka's stocks rose by 0.9% following an unexpected 25 basis point interest rate cut by the central bank to support economic recovery from the country's worst financial crisis in decades. South Africa's rand increased by 0.2% as inflation data for June matched expectations but remained above the central bank's 4.5% target, tempering prospects for imminent rate cuts.

Turkey's main equities index dropped 0.6% after a central bank decision to keep interest rates unchanged. The lira slipped by 0.2%, trading near record lows, amid measures to regulate the currency's excess liquidity. In Asia, Hong Kong stocks fell nearly 1%, impacted by electric vehicle makers NIO and Xpeng's losses after Tesla's disappointing quarterly report.

China's yuan reached its lowest point in over eight months, as currencies linked to commodities generally lost ground due to a bleak outlook for Chinese demand. Nigeria's naira firmed by 0.4% against the euro after the central bank raised borrowing costs by 50 basis points to 26.75%.

(With inputs from agencies.)