China's Economic Stimulus Measures Fizzle: Emerging Market Currencies Under Pressure

The latest economic stimuli from China have so far shown little effect in generating broader positive sentiment for riskier asset classes. This was reflected in the weakness of emerging market currencies against the US dollar. The MSCI Index, which tracks the performance of emerging market currencies, fell by 0.1 percent, with the South African rand and the South Korean won each depreciating by 0.7 percent against the greenback. Initial stock gains were dampened by waning optimism about the impact of Chinese measures on its own economy. A US holiday resulted in the closure of bond markets, reducing market leverage. Although Chinese mainland stocks recorded gains on Monday, a decline in Hong Kong-listed securities neutralized their positive impact on the emerging markets stock index. Investors reacted rather cautiously to the highly anticipated announcement by China's Finance Minister, Lan Fo'an, who promised new measures to support the real estate sector but did not present concrete figures or plans to boost consumption. Market strategist Elias Haddad of Brown Brothers Harriman considers the news from China unsatisfactory and sees it as a reason for increased support for the US dollar. A potential rise in interest rate expectations in the US could further boost the dollar, providing more room for adjustments compared to other major economies. Although China's latest stimulus package prompted Goldman Sachs Group to raise its economic growth forecast, Chinese stocks were unable to reverse their negative trend and continued to underperform, recording their largest weekly decline since October 2022. In Europe, the Hungarian forint performed above average with a gain of 0.2 percent. A largely stable performance against the dollar persisted after the government announced a new growth promotion plan ahead of the 2026 elections. Hungary's Ministry of Economy plans to allow savers to make tax-free withdrawals from their private pension funds from next year to purchase or renovate properties.