EMERGING MARKETS-EM assets slide as China property woes, geopolitics rattle sentiment

Emerging market stocks were set to wipe out last week's gains on Monday as political conflict, concerns over China's property sector and anxiety about a tech bubble prompted investors to pull back. The moves threaten to slow momentum in regional assets as a volatile but strong year draws to a close and may curb their appeal as an alternative destination for foreign capital looking beyond the United States.

Emerging market stocks were set to wipe out last week's gains on Monday as political conflict, concerns over China's property sector and anxiety about a tech bubble prompted investors to pull back.

The moves threaten to slow momentum in regional assets as a volatile but strong year draws to a close and may curb their appeal as an alternative destination for foreign capital looking beyond the United States. MSCI's index of emerging market stocks fell nearly 1.2%, erasing last week's gains. The currencies index dipped 0.1%.

ECONOMIC DATA, GEOPOLITICS TAKE CENTRE STAGE China's real estate stocks index fell 2.1% after bondholders rejected China Vanke's initial plan to push back payment by a year, raising the risk of default for the state-backed developer and renewing concerns about the sector.

The wider economic backdrop offered little relief, with data showing that the second-biggest global economy's factory output growth slowed to a 15-month low in November, while retail sales posted their worst performance since December 2022. The blue-chip CSI300 index and the Shanghai Composite Index each fell 0.6%.

"Policymakers have lots of work to do if domestic demand is going to drive growth in 2026 as planned," economists at ING wrote in a note. In Ukraine, most dollar-denominated bonds were trading slightly higher.

President Volodymyr Zelenskiy offered to drop the country's aspirations to join the NATO military alliance, meeting one of Moscow's longstanding demands, but the jury is still out on how transformative the pledge will be for peace talks. Diplomatic efforts have intensified in recent weeks, and any credible breakthrough would remove a major overhang on global assets. In the Middle East, tensions resurfaced after Hamas chief negotiator Khalil al-Hayya said Israel's assassination of a senior Hamas commander threatens the viability of the Gaza ceasefire.

Israel's shekel was 0.2% weaker against the dollar, while the stock index climbed 0.5%. The South African rand rose 0.2% and was headed for its fourth consecutive day of gains if current levels hold, supported by higher gold prices. Elsewhere in Africa, Fitch Ratings upgraded Ivory Coast's long-term ratings. Some of the country's Eurobonds inched up.

CENBANK DECISIONS DUE The week brings a number of central bank decisions that will shape policy expectations for the year ahead and could inject renewed volatility into markets, notably in currencies, that have already seen heavy swings this year. Later on Monday, attention will turn to Latin America, another corner of the emerging market universe, where Chile will be in the spotlight after Jose Antonio Kast won the presidential election on Sunday, underscoring the country's most pronounced shift to the right since the end of the military dictatorship in 1990. With several elections scheduled across the region next year, markets are bracing for the volatility that typically accompanies major political contests.

Investors are also contending with renewed unease over stretched AI valuations after Oracle's earnings forecast last week reignited questions about whether the sector's heavy investment spending is sustainable. "AI is clearly transformative, but that doesn't protect markets from the classic signs of a bubble. Valuations are stretched, concentration is extreme, and sentiment is shifting toward euphoria," said Lukman Otunuga, senior market analyst at FXTM.

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