MSCI Inc.’s gauge of developing-nation equities surged as much as 1.6% before paring most of its early gains on Monday. The price action reflected moves in Chinese stocks after Beijing’s measures to reinvigorate the market, including a cut in a levy on stock trades, failed to sustain a rally.
“The Chinese market may still look like falling knives for those requiring somewhat more comfort on policy commitment,” said Vishnu Varathan, executive director and head of economics and strategy at Mizuho Bank Ltd. in Singapore. “Add to that a Fed that is a little more restrained on uncertainty, but necessarily a long way off a proper pivot.”
Global investors have little confidence that China will succeed in shoring up its financial markets, predicting that mounting economic stress will drive the yuan’s offshore exchange rate to a historic low of 7.6 per dollar before the end of the year. The offshore yuan was down 0.1% at 7.3 on Monday. Even with developing-nation stocks on course for their worst month in almost a year, hedge funds’ bullish bets in emerging-market equity futures have risen to the highest since the gauge’s pandemic low three years ago. While it’s difficult to tell if such bets on futures are outright longs or hedges for bearish wagers, the increase at the very least signals that funds want to limit their negativity about emerging markets.
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