Singapore: Emerging-market stocks may decline in coming months as countries including China and India move closer to pushing up borrowing costs, according to Morgan Stanley.
Shares in economies experiencing the world's fastest growth may see "corrections", said strategist Michael Wang. Emerging- market shares fell the most in three weeks Friday after China's central bank sold three-month bills at a higher interest rate for the first time in 19 weeks, raising concern government steps to curb lending growth will slow the economic expansion. Morgan Stanley still estimates that these stocks will provide 20 per cent returns by yearend.
"The trigger for corrections in emerging-market equities could be central-bank tightening, and certainly China plays into that," Wang said in an interview from London.
"This is not the start of really restrictive monetary policy, but we certainly can see the market pull back in anticipation of rate hikes."
‘Positively correlated'
A "correction" is commonly defined as an index's retreat of at least 10 per cent from a high.
The MSCI Emerging Markets Index fell 0.7 per cent on Friday, retreating from a 17-month high, and stocks declined in Shanghai after China's central bank sold three-month bills at 0.04 percentage point, or four basis points, higher than at last week's auction. The emerging-market stock index posted a record 75 per cent rally last year and rose 0.2 per cent to 1,016.41 Friday. Investor Mark Mobius said stocks have the potential to rise further even as central banks raise rates and withdraw stimulus measures.
Higher rates may be "positively correlated" with the market and don't always lead to lower equity prices, Mobius, who oversees more than $30 billion (Dh110 billion) as executive chairman at Templeton Asset Management, said in a phone interview from Singapore.
