EMERGING MARKETS-EM stocks drop as AI concerns cloud global sentiment

By Nikhil Sharma

Nov 18 (Reuters) - Emerging market stocks succumbed to selling pressure on Tuesday as global sentiment soured on renewed AI-related valuation concerns, while the CEE region also awaited an interest rate decision in Hungary.

MSCI's index of emerging market stocks .MSCIEF fell 1.8% to a near one-month low, putting it on track for its worst single day drop since April 7, when U.S. tariff announcements triggered a global market rout.

As investors look to Nvidia's NVDA.O earnings on Wednesday, questions mounted over valuations in big-tech and AI stocks, as well as the spending pouring into the sector.

The risk-off mood spilled over to Asia, with an emerging Asia equities .MIMS00000PUS index and a broader gauge of Asian shares outside Japan .MIAPJ0000PUS both slipping about 2%.

Losses also tracked Monday's selloff on Wall Street, with investors awaiting the long-delayed U.S. jobs report this week.

Meanwhile, an index tracking EM currencies .MIEM00000CUS slipped 0.17%, on track for its third straight day of losses.

In Central-Eastern Europe, attention centred on the Hungarian National Bank's rate-setting call at 1300 GMT, where the central bank is widely expected to leave its base rate at the European Union's joint-highest level of 6.5%.

However, the central bank also faces heightened pressure from the government to cut rates.

Policymakers have expressed concerns about higher fiscal spending in the run-up to parliamentary elections next year, creating an uncertain inflation outlook.

Hungary's forint EURHUF= weakened 0.3%, having been under pressure ever since the government's decision to raise its budget deficit targets.

"Fiscal credibility has deteriorated following the decision to raise 2025- 26 deficit targets to 5% of GDP, widening spreads, and raising sovereign downgrade risk," said Barry van der Laan, senior FX market strategist at Monex.

"Easing in this environment would undermine the Bank’s explicit prioritisation of FX stability and inflation expectations."

Budapest stocks .BUX dropped 0.87%, shrugging off data that showed gross average wages rose by an annual 9.5% in September, after an 8.7% increase in August.

The Czech koruna EURCZK= was subdued, while Prague's main stock index .PX lost 0.8%. Data showed October industrial producer prices fell 1.2% year-on-year, in line with market expectations.

In Poland, the Warsaw benchmark index .WIG20 sagged 1.2% - on pace for its fourth day of losses - in a broad-based decline led by the country's biggest utility PGE PGE.WA, sliding 5.6% to a one-month low, due to ongoing pressures after its third quarter failed to impress investors.

ING Bank Slaski INGP.WA lost 2.5% after agreeing to acquire the remaining 55% stake in asset Polish management firm Goldman Sachs TFI for 396 million zlotys ($108 million).

The Polish zloty EURPLN= struggled to find direction.

Emerging markets have outperformed their Wall Street peers so far this year as investors rotated into international markets, often seen as undervalued, in search of cheaper valuations and higher yields.

But a BofA survey noted that emerging markets remain highly vulnerable to any risk-off move in the last quarter, citing their unprecedented rally and fading hopes for a December Fed rate cut.

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