(Bloomberg) -- Emerging-market currencies fell as US strikes on Iran spurred a bid for the dollar, with equities hit by a report saying the US will revoke a technology waiver.
South Korea’s won and some Asian peers underperformed as investors watched Iran’s response to US strikes on its nuclear sites. In focus was the Strait of Hormuz, the Persian Gulf’s exit to the open ocean and a key route for energy trade. While Tehran has threatened to block the passage, it hadn’t done so by Monday morning and investors speculated Iran has few military options.
MSCI’s EM currency index lost 0.4%, with eastern European units also following the euro lower. While Asia contributed most of the losses, trading in the Middle East suggested the bearishness wasn’t spreading. Both Israel’s shekel and Egypt’s pound were higher on expectations that the US strikes will help to accelerate the end of the conflict.
“Financial market reaction after the US bombed Iran’s nuclear facilities over the weekend is so far restrained,” said Elias Haddad and Win Thin, strategists at Brown Brothers Harriman & Co. “The fluid military situation between the US and Iran can continue to lend USD a safe-haven bid.”
The MSCI index for EM stocks fell 0.8%, with Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. accounting for two-thirds of its losses. The information-technology subindex within the benchmark headed for the biggest loss since April after a report the US Commerce Department wants to end waivers used by chip firms to access American technology in China.
MSCI’s equity benchmark was paring its losses as of 1:54 p.m. Dubai time as European trading indicated money managers are watching for further developments in the Middle East rather than selling their holdings. Oil, the focus of investor concerns, erased its increase and Treasuries witnessed no haven buying.
While the EM gauge has shed more than 2% from a three-year high reached in early June, it is still heading for a sixth month of advances, its longest winning streak since 2017. Bets on artificial-intelligence and on a Chinese economic rebound have underpinned the rally, along with monetary easing in several developing nations.
Financial-technology firm Valu surged on its debut in Cairo, in another sign of limited market fallout in the region.
Meanwhile, emerging-market default hedging costs continued to narrow. The Markit measure of credit default swaps that protect against payment failures by EM governments over the next five years, dropped for a second day.
Lebanon’s defaulted sovereign dollar bonds posted some of the biggest gains Monday among EM peers. While investors have been frustrated by the slow progress on the country’s banking reforms — key to unlocking International Monetary Fund assistance — they are also taking heart from signs of stability in the new administration. Lebanese-based Hezbollah, an Iranian proxy force, has stayed out from the tit-for-tat attacks between Iran and Israel.
--With assistance from Jaehyun Eom, Swati Pandey and Bhaskar Dutta.