US banking turmoil dampens hopes of an EM boom

A roaring ‘20s for EMs? Try “hanging in there”: The emerging market boom asset managers including Morgan Stanley were predicting at the start of 2023 may have been scuppered by recent banking turmoil, Bloomberg reports. Developing stocks ended the quarter up 3.6% — around half the return of developed market peers — as a strong start to the year gave way to concerns over volatility triggered by the recent collapse of several US banks.

All is not lost: That EM assets are notching gains at all is a sign of resilience and strong fundamentals, Morgan Stanley’s Steven Quattry told the business news outlet. “If I told you over a year ago that the Fed rate would be near 5%, the USD has strengthened, and EM is still hanging in there, you might have been surprised,” he said.

ALSO- Nasdaq makes a comeback in the last stretch of 1Q: The tech-heavy US Nasdaq notched its strongest quarterly performance since 2020 in 1Q 2023 on expectations that the Federal Reserve will relax interest rate hikes, the Financial Times reports. Tech stocks looked to be on the rocks after Silicon Valley Bank (SVB) collapsed in February — but banking sector troubles have had the unintended upside of persuading investors that the US Federal Reserve will soon wind up its tightening cycle to protect the economy, the FT says. The Nasdaq gained 1.7 percent on Friday to end the quarter up 16.8%. The S&P 500 increased 7% during the quarter after rising 1.4% on the last trading day of 1Q.

SOUND SMART- So-called growth stocks — typically expensive firms like Big Tech that spend on innovation for long-term gains — tend to do better in a lower-rate environment. The tech juggernauts have also been insulated from fears of a drop in bank lending, the FT notes, while small-cap companies have borne the brunt of volatility in the wake of the SVB collapse.

THE CLOSING BELL-

The EGX30 rose 1.7% at yesterday’s close on turnover of EGP 1.2 bn (39% below the trailing 90-day average). Local investors were net buyers. The index is up 14.4% YTD.

In the green: Ezz Steel (+8.8%), Fawry (+7.2%) and Heliopolis Housing and Development (+6.1%).

In the red: Egypt Kuwait Holding (-1.9%), CIRA Education (-1.7%) and Eastern Company (-1.1%).

Asian markets are mixed this morning, while futures have European indices opening largely in the green and Wall Street in the red later on today as traders digest OPEC’s shock production cuts, which had Brent crude futures soaring as much as 8% on today’s open.