Summary

• Emerging market stocks fall breaking 10-day winning streak due to weak economic growth in China and power outage worries in South Africa.
• The MSCI index of emerging market shares fell 0.5%, with Hong Kong's main index, which includes companies like Tencent, Alibaba and Baidu, declining 0.8%.
• Sentiment dampened by data revealing a slump in China's economic growth and population decline.

Emerging market stocks fell on Tuesday, breaking a 10-day winning streak, as weak economic growth in China renewed worries about an economic downturn. This came as South Africa's rand stabilised following a sharp decline over power outage concerns. MSCI's index of emerging market shares dropped by 0.5%, with Hong Kong's main index, which includes heavyweights such as Tencent, Alibaba and Baidu, down 0.8%.

The slide in the broader EM index comes after it gained more than 20% since hitting a 2022 low in October, helped by hopes of an economic recovery in China as it eased COVID-19 curbs, as well as expectations that the U.S. Federal Reserve would opt for smaller interest rate hikes. However, sentiment was dented on Tuesday after data showed China's economic growth in 2022 slumped to one of its worst levels in nearly half a century. This, coupled with data showing China's population fell last year for the first time in six decades, has led to a bleak long-term outlook for the country.

"The current wave of COVID infections is likely to weigh on China's growth at the beginning of this year. But the swift and abrupt reopening means that the time to bottom out will likely be much shorter too," said Tommy Wu, senior economist at Commerzbank. "We expect economic activity could return to normal in the second quarter or even as early as March. Moreover, the government's policy support will help to facilitate the recovery."

Several Asian bourses were in the red, as were those in central Europe and South Africa. Emerging market currencies also marked an end to a rally that saw an index rise nearly 3% over 15 straight sessions of gains, a streak that ended on Monday. It was down 0.4% on Tuesday.

South Africa's rand stabilised after struggling power utility Eskom said it would shorten power cuts from Tuesday morning. The currency lost 1.3% on Monday on worries about power outages, which are expected to continue at least into 2024, weighing on economic growth in the country. There were also policy worries as the power shortages are a major source of frustration for voters ahead of 2024 elections that could see the governing African National Congress lose its majority in parliament for the first time.