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MSCI EM stocks index down 8%, FX off 0.4%

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Asia credit starts to wobble; frontier market bonds drop

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GS expects significant Chinese fiscal easing to offset

tariffs

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Markets expect c.banks of India, Singapore to hasten rate

cuts

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CEE stocks selloff deepens in tariff fallout

By Johann M Cherian

April 7 (Reuters) - The emerging market stocks index on

Monday was heading for its biggest one-day selloff since the

2008 global financial crisis, as U.S. President Donald Trump

remained determined to upend the global trade order that markets

worry could trigger a recession.

Investors started the week parsing Trump's comments that

signaled they would have to endure more pain and he would not do

a deal with China until the U.S. trade deficit was sorted out,

which drove MSCI's EM stocks index down by 7.9%.

A currencies gauge weakened 0.4% to the

dollar and was set for its largest daily drop since November,

with those of China, India dipping 0.4% each,

while South Africa's rand and Mexico's peso

weakened over 1% each.

Financial assets in the developed, developing and the

frontier world along with commodity prices were extending last

week's rout after the U.S. President's restrictive trade

policies was met with quick retaliation from Beijing, fanning

worries that a global trade war could weigh on economic

performance.

Investors are also anticipating a response from Europe this

week, while other trade-reliant economies in south east Asia are

hoping to strike trade deals with the U.S.

"Investors had assumed Trump's trade taxes were a bargaining

tool, as during the first term. If the competence of

policymaking is questioned, markets will worry that economic

damage will be lasting," said from Paul Donovan, chief economist

at UBS Global Wealth Management.

On Monday, equities in China slid 7% and

those in Hong Kong tanked 13.2% - its steepest decline

since 1997. Brokerage Goldman Sachs said it expects Chinese

policymakers to accelerate fiscal easing measures significantly

to offset the repercussions of higher tariffs.

MSCI's index tracking Asia-Pacific shares outside Japan

slid 8.4% and a plunge in Korean shares

triggered a trading curb for the first time in eight months.

Investors also began to bet on the increasing likelihood of

corporate and sovereign credit defaults, as the five-year credit

default swap spread on the Markit Itraxx Asia ex-Japan index,

widening to its highest since August last year, according to S&P

Global Market Intelligence data.

The default swaps on China jumped 82 basis points, while

that of South Africa climbed seven bps.

International sovereign bonds of a number of frontier

markets also suffered sharp selloffs with those of Sri Lanka

, Egypt and Kenya

falling over 4 cents on the dollar.

Markets were pricing in that a stronger dollar against

weaker emerging market currencies, combined with a weak global

trade environment could increase the risk of a debt spiral in

emerging markets.

Some economies such as Sri Lanka and Pakistan were just

regaining their footing after defaults triggered by the COVID

pandemic.

Pakistan's hard-currency bonds lost over 10 cents putting it

below the 70 mark, widely perceived as distressed debt.

Worries of a global recession also had markets pencilling in

the likelihood that the U.S. Federal Reserve could lower

borrowing costs by at least five 25 basis points by December,

according to data compiled by LSEG.

Markets are also expecting sluggish economic performance to

also speed up interest rate cuts by central banks in developing

economies at their upcoming monetary policy meets, such as India

and Singapore.

The market rout continued, with equities in South Africa

Indian and Turkey falling

about 2% to 4% each.

An index tracking central and eastern European stocks

tumbled 4.7%, with those of more open economies such as Czech

Republic and Hungary falling 5.4% and 6.9%,

respectively.

Hungary's forint depreciated 0.5% against the euro

and Poland's zloty dropped 0.8%.

Currencies such as the euro and Swiss franc

outperformed the dollar as markets priced in the likelihood that

the U.S. economy could also be hit with a recession, in the face

of tighter trade.