An exchange-traded fund tracking Indian equities outperformed broader emerging markets on Monday after a long-awaited trade breakthrough between New Delhi and Washington helped offset a global risk-asset selloff. The $9.4 billion iShares MSCI India ETF posted its biggest gain since May last year after US President Donald Trump announced a reduction in tariffs on Indian goods to 18% from 25%.
The tariff cut followed Prime Minister Narendra Modi’s agreement to halt purchases of Russian oil, a move that markets viewed as easing geopolitical and trade tensions with the US. The rally in Indian equities stood out sharply against weakness across other developing markets. MSCI’s benchmark index for emerging-market equities fell as much as 2.9%—its steepest drop since April—before paring losses as the global selloff moderated. South Korean stocks were among the hardest hit, with the Kospi index plunging 5.3%.
The broader market slide came on the heels of a sharp selloff on Friday across global equities and commodities. That rout was triggered by Trump’s nomination of Kevin Warsh to lead the US Federal Reserve, a move that boosted the dollar amid expectations of a tougher inflation stance and fewer interest-rate cuts. While losses in gold and silver eased during Monday’s session, the dollar remained firm. Cryptocurrency prices rebounded.
Emerging-market currencies also weakened, with MSCI’s currency gauge down about 0.4%. The South Korean won lagged peers, while Latin American currencies outperformed. The Colombian peso strengthened after the country’s central bank delivered a surprise 100-basis-point rate hike on Friday. The greenback extended gains after US ISM manufacturing data for January exceeded expectations.
“It seems that in this environment in which the dollar is getting stronger, the EM position was less crowded, so the movement is not as violent as in metals or other assets,” said Marco Oviedo, senior strategist at XP Investimentos. “Carry could also be relevant,” he added, pointing to expectations that Mexico will keep rates unchanged this week and that Brazil will continue with a gradual easing cycle. Despite near-term volatility, Morgan Stanley strategists said Trump’s choice of Warsh does not derail the yearlong rally in emerging-market currencies and local bonds. Investors should buy dips, they wrote, citing solid fundamentals and monetary policy as key anchors.
Meanwhile, US economic data releases face delays due to a partial government shutdown. The Bureau of Labor Statistics said it will not publish the January jobs report as scheduled on Friday, while the December Job Openings and Labor Turnover Survey has also been postponed. In global credit markets, Poland is preparing a return to Japan’s bond market with a multi-tranche Samurai issuance, while Argentina has ruled out global bond sales for now, citing access to cheaper alternative funding.