EMERGING MARKETS-Stocks, FX face largest monthly declines in years as Middle East war rages
By Johann M Cherian
(Reuters) - Stocks and currencies in most emerging markets were on track to log their biggest monthly declines in several years on Tuesday as the conflict in the Middle East raged, with Asia logging its worst month since 2008.
Offering some respite was a report that U.S. President Donald Trump was willing to end the war without reopening the strategic Strait of Hormuz.
However, fresh U.S. troops arriving in the region signalled that further escalation could not be ruled out. Oil prices hovered at over $100 a barrel.
"These developments reinforce our earlier view that this is shaping up to be a longer and more disruptive war than markets have been reflecting," Jamie Fallon, an economist at Tellimer Research said.
MSCI's EM stocks index .MSCIEF fell 1.4% and was set for its steepest monthly drop since 2020.
March would also be the end of the first quarter of 2026 - a period of severe volatility for global markets as investors juggled several bouts of trade and geopolitical uncertainty, including the U.S. operation to remove Venezuela's president.
An EM currencies index .MIEM00000CUS was steady on Tuesday but was heading for its steepest monthly loss since 2022 as traders flocked to the safe-haven dollar =USD.
Before the U.S.-Israeli war with Iran, EM stocks were having their best start to the year since 2012 as investors diversified their portfolios away from Wall Street against the backdrop of trade uncertainty and artificial intelligence disruption concerns.
But now both the indexes are headed for quarterly losses.
ASIA FACING WORST MONTH SINCE GREAT RECESSION
Stocks in energy-deficient Asia .MIMS00000PUS suffered their biggest monthly declines since the Great Recession in 2008, with South Korea's KOSPI index .KS11 logging its steepest fall since October 2008.
Currencies such as the Philippine peso PHP=, Indonesia's rupiah IDR= and India's rupee IRN=IN were trading at record lows.
European stocks .MIME00000PUS were poised for their biggest monthly losses since 2023. Turkish banks .XBANK have fallen over 20% in March, while the lira TRYTOM=D4 has declined over 3% over the past three months to fresh record lows.
The International Monetary Fund warned that the conflict has caused serious disruption to the economies of frontline countries, and is dimming the outlook for many economies that had just started to recover from previous crises.
Poland's zloty EURPLN= edged up 0.2% after data showed that energy costs pushed headline inflation higher in March.
Governments in the region are also exploring ways to cushion the impact on their economies.
The Czech Republic agreed to release 100,000 tons of crude oil from state reserves and said it was also urging retailers to limit margins on fuels and was considering a cut in excise tax on fuels.
The crown EURCZK= and the zloty have lost over 1% each this month, while Hungary's forint EURHUF= has depreciated over 2%. The currencies were marginally higher on Tuesday against the euro.
Meanwhile, in the heart of the conflict, Qatar has been placed on Rating Watch "Negative" by Fitch on uncertainty regarding its security environment. The country's hard-currency bonds were broadly steady.
FEW WINNERS
Investors have found refuge in some pockets of China with brokerages citing the country's low dependence on Gulf energy and ample fiscal support capacity. Losses on China's main indexes .SSEC, .CSI300 are at a fraction of the broader EM benchmark this month.
Oman stocks .MSX30 also got a bid and are up nearly 40% this month.
"They're emerging as a bit of a relative winner in this conflict because besides Saudi Arabia, Oman is the only country with their airspace open," said Ruchir Desai, portfolio manager at Asia Frontier Capital, adding that trade and tourism is likely to be a long-term boost.
