(Bloomberg) -- Emerging-market stocks fell on Monday, after posting the longest streak of weekly gains since 2020, as President Donald Trump’s latest executive order deepened investor concerns over the economic showdown between the US and China.
MSCI Inc.’s benchmark for EM equities dropped 0.7%, after a 10% rally in the past six weeks that was driven by bets that Chinese technology companies, especially Alibaba Group Holding Ltd., are making strides in artificial intelligence. That had taken the index’s valuation to a four-month high, positioning it near highs that have sparked selloffs over the past two years.
Over the weekend, Trump directed the Committee on Foreign Investment in the United States to restrict Chinese spending on technology, energy and other strategic US sectors, his administration’s latest salvo against the world’s second-largest economy. The administration also called on Mexican officials to place their own levies on Chinese imports and proposed fees on the use of commercial ships made in China.
While the flurry of executive orders narrowed the negotiating room for China over trade tariffs, the country also faced more urgent pressures on the domestic front. Tightening liquidity is leading to a surge in money-market rates, a squeeze worsened by local governments’ borrowing to replace off-balance sheet debt. Investors are fretting over signs that the People’s Bank of China is pausing accommodative measures and authorities aren’t following through on policy pledges.
“The primary reason for the recent selloff in Chinese bonds is the PBoC’s passive bearish aggression, which refers to the lack of monetary easing despite tight liquidity,” Societe Generale strategist Kiyong Seong wrote in a note. “It would be unreasonable for the PBoC to ignore a sustained selloff in Chinese bonds that exceeds the level at which the Politburo committed to adopting a ‘moderately loose’ monetary policy.”
A gauge of Chinese technology stocks listed in Hong Kong fell 1.2%. Alibaba, Tencent Holdings and Taiwan Semiconductor Manufacturing Co. accounted for 61% of the MSCI Emerging Markets Index’s losses Monday. The gauge was trading around 12.5 times the 12-month projected earnings of its members, the highest valuation since mid-October.
In currency markets, the dollar’s sluggish moves after three weeks of losses helped to steady emerging-market exchange rates. The South Korean won and Thai baht outperformed as 18 of the 31 most widely traded EM currencies moved higher.
Senegal’s sovereign dollar bonds posted some of the biggest losses among EM peers after Moody’s Ratings lowered the country’s credit rating to six levels below investment grade.
Elsewhere, Saudi Arabia mandated banks for a potential sale of a green bond, with a seven-year security in euros. The kingdom also sought to sell a 12-year bond. The date of the issues wasn’t announced.
In eastern Europe, Hungary proposed an income-tax exemption for mothers, Portfolio website reported, citing Economy Minister Marton Nagy. Prime Minister Viktor Orban will provide further details about the move in a speech to parliament. Hungary’s 10-year government bond yields eased for a third day.