Emerging-Market Fear Gauge Soars As Traders Brace For Turmoil
The CBOE Emerging-Market ETF Volatility Index, the VIX equivalent for developing-nation stocks, jumped 15.5 percentage points at the open.
(Bloomberg) -- The surging volatility across global financial markets is sending shock-waves through emerging nations, with investors rushing to safety amid fresh turmoil at Credit Suisse Group AG.
A gauge of developing nation currencies fell for a second session Wednesday, with the Hungarian Forint and the Czech Koruna leading losses, down at least 2.9% each. An index of emerging-market stocks is at the lowest intraday level since December, with South African shares posting their longest losing streak in five years. The CBOE Emerging-Market ETF Volatility Index, the VIX equivalent for developing-nation stocks, jumped 15.5 percentage points at the open, set for its biggest one-day jump since January 2022.
The souring mood comes after the turmoil at Credit Suisse that followed the collapse of some American regional banks, leaving investors worried about potential chain reactions. Government debt yields plunged globally as traders ditched bets on additional rate hikes and begin pricing in cuts by the Federal Reserve and other major central banks.
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“We’re entering uncharted territory” amid banking fears, recession worries and technical factors amid stop-loss orders and VAR shocks, said Hari Hariharan, the chief executive officer at New York-based NWI Management. “Strap your seat belts on and pray.”
Barings Ltd. has turned cautious on emerging-market debt, saying the collapse of US lender Silicon Valley Bank and the stress in Credit Suisse risk a chain reaction as companies struggle to get access to financing.
In Latin America, the Chilean, Colombian and Mexican pesos all fell at least 1.9% versus the dollar. Banking shares led losses on the Mexican stock exchange, while Brazil’s benchmark stock index was dragged lower by commodity-related companies. Bolivia’s sovereign spreads jumped, putting the country’s debt above the threshold to be considered distressed.
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“For the EM space, this once again leaves the market at risk of being buffeted by risks outside local policy makers’ control,” said Robert Hoodless, an FX strategist at InTouch Capital Markets in London. “For now, the market remains in the eye of the storm.”
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