The MSCI Emerging Markets Index dropped 1.2%, led by declines in Chinese stocks in Hong Kong. All industry groups posted losses, while the yuan weakened for the third consecutive day.

For the first time since 2021, China’s inflation turned negative, increasing deflationary pressure. Experts initially linked the decline to an early Lunar New Year, but data suggests deeper economic weakness.

Donald Trump’s trade policies are also weighing on markets. New tariff restrictions, rising unemployment, and job cuts in the public sector are raising the risk of a U.S. recession.

The South African rand reached a weekly volatility high, while Hungary’s 10-year bond yields rose amid a widening budget deficit. Despite instability, sovereign dollar bonds from Poland, Romania, and Malaysia outperformed among emerging markets.