Emerging Markets Face Turbulence Amid Key Policy Developments

Most emerging market equities fell on Wednesday as China's major policy meeting concluded and investors assessed developments in Kenya and Turkey's corporate tax bill implications. MSCI's index for developing economies dropped 0.2%, with China, Hong Kong, and Taiwan showing mixed results. Political and economic tensions influenced market sentiments.

Equities in most emerging markets slid on Wednesday, influenced by the nearing conclusion of China's Communist Party's major policy meeting. Investors also monitored developments in Kenya and considered the implications of a corporate tax bill in Turkey. MSCI's index tracking developing economies fell by 0.2%, while a currencies gauge showed little change.

China's main stock indexes closed flat and lower, respectively, amid the 'Third plenum' of the ruling Communist Party, where markets anticipated reforms to support the struggling top economy. Hong Kong equities ended flat, though the property index rose 1.3% after a realtor agency reported record home purchases by mainland Chinese buyers following the removal of buying curbs.

Taiwan's main stock index dropped nearly 1%, impacted by chipmaker TSMC, after U.S. presidential candidate Donald Trump suggested the country should pay the United States for defense. The tech giant is expected to release quarterly results on Thursday. Commenting on the potential impact of a second Trump presidency on developing economies, Clementine Wallop, director of Sub-Saharan Africa at Horizon Engage, highlighted that sectors like fossil fuels might benefit, while green energy investors could see challenges.

Romanian equities edged up 0.2%. Prime Minister Marcel Ciolacu advised small business owners that the country cannot afford to raise taxes in 2025 and emphasized the need to curb tax evasion to address the budget deficit, which exceeds the EU's 3% ceiling. Turkey's main stock index fell 0.6%, with banks dropping nearly 2%, as a bill proposing a minimum corporate tax on large multi-nationals garnered focus.

In South Asia, a Reuters poll indicated that the Indian government is committed to maintaining pre-election borrowing and spending targets in the July 23 budget, despite losing its majority vote. Indian equity markets were closed due to a holiday. Meanwhile, Kenya's shilling declined 0.6%, amid recent anti-government protests demanding President William Ruto's resignation. "The protests we're seeing in Kenya could spread as citizens show their discontent with what they see as government failures," Wallop noted. Ukraine's hryvnia dropped 1.2% to a record low, following statements from former Russian President Dmitry Medvedev that the country's accession to NATO would be considered a declaration of war against Moscow.

(With inputs from agencies.)