Emerging-market assets started the new year on a weaker note, weighed down by concerns over China’s economic stagnation.

An MSCI Inc.’s gauge for developing-nation stocks fell for the first time in seven trading sessions on Tuesday, while the currency index slumped the most since February. Credit default swaps protecting against payment risks among 22 sovereign issuers widened for a third day, the longest streak since late November.

Chinese stocks recorded their worst start to a year since 2019 and the yuan slid after weak manufacturing and home-sales data signaled the growth deceleration in the world’s second-biggest economy is far from over. President Xi Jinping’s rare admission of the country’s economic challenges during a televised address further weighed on investor sentiment.

“The purchasing managers’ index figures indicate a slowdown in China’s economic recovery in the last months of the year,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. This will “pressure fiscal and monetary policymakers to take urgent action. China requires more than just stimulating economic activity — it necessitates fundamental reform of the underlying growth engine.”

The latest data releases showed China’s factory activity shrank in December to the lowest level in six months and a slide in home sales accelerated. Most of Asia also saw a slowdown in new orders and production volumes in December, as lower demand from China weighed on the region.

Emerging markets had ended 2023 on a high note amid a weakening US dollar. The MSCI Emerging Markets Index of stocks rose 7% last year after being down almost down 5% at one point. The currency gauge posted an annual gain of 4.8%, while a Bloomberg measure of sovereign dollar debt rallied 11%.

Tuesday’s moves, however, indicated that the broader concerns of investors that led to wide fluctuations last year were continuing. Besides China’s patchy economic recovery, the disparity between market expectations of Federal Reserve interest-rate cuts and the central bank’s own projections threatens to keep assets volatile.

“The difficulty now is that emerging markets had a superb end to last year,” Tim Ash, a senior emerging-market sovereign strategist at RBC Bluebay Asset Management, said in an interview with Bloomberg TV. “In general, the market bought the story of 2024 in late 2023. Probably, things are looking a bit overbought, if anything.”

Mexico tapped global debt markets on Tuesday, kicking off bond sales from developing-nation governments this year as traders brace for fiscal expansion in the final year of President Andres Manuel Lopez Obrador administration.

Investors are also keeping an eye on tensions in the Middle East. Even as Israel withdrew some troops from Gaza, Iran sent a warship to the Red Sea in a potential escalation.

This article was provided by Bloomberg News.