Warsh Comments Spark 1.4% Plunge in Emerging Market Equities

Emerging-market stocks and currencies are declining as investors weigh the prospect of higher US interest rates following hawkish comments from Federal Reserve Chair Kevin Warsh. The MSCI Inc.'s gauge of developing-market equities fell as much as 1.4%, with South Korean and Taiwanese indexes leading losses across the region.

An index for emerging market currencies slipped 0.1%, on track for its first decline in nine sessions, with the Indonesian rupiah underperforming peers. Treasury yields and the dollar mostly consolidated their gains from Friday, when Warsh warned that inflation isn’t meaningfully slowing.

His remarks pushed the probability of a September rate hike to around 60%, from about 34% before the speech, according to swaps. Markets will now watch for further clues from the US central bank, while Middle East tensions may add to volatility.