Outperformer India now a laggard in MSCI EM basket

Rising US bond yields are prompting global investors to prune their exposure to emerging markets as an appreciating dollar diminishes prospective returns on equity.

The MSCI EM index—a stock-market gauge for developing nations—fell the most since February after the US 10-year treasury yields inched closer to 3.2 per cent, the highest level since 2011. Typically, rising US yields dim the allure of EM assets. But this time, yields are rising at a time when global trade wars appear to be escalating, causing EM currencies to tumble.

Consequently, India, considered a relative safe haven a few weeks ago, is fast losing its sheen after the rupee plunged to a record low and crude oil prices soared to new highs. The Indian market, which was a major outperformer until the first half of August, is now underperforming the MSCI EM in dollar returns. The Nifty dollar returns on year to date stood at a negative 12.7 per cent, compared with the MSCI EM at 10.6 per cent.