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London - Renewed worries over US and Chinese growth hit emerging assets on Thursday, with equities falling to the lowest in almost two months, but central bank action supported the Turkish lira at three-week highs against the dollar.
Emerging equities on the MSCI index fell for the second day in a row, losing 0.9% after data highlighted that while the US economy is slowly improving, it is not building up much momentum.
Sentiment was also hit by heavy losses on Chinese stocks, which closed at 10-week lows after disappointing company results suggested the slowdown in the world’s No 2 economy is hurting profitability more than expected.
China comprises almost a fifth of the emerging index.
“Markets are very concerned about the trajectory of the Chinese slowdown,” said Manik Narain, emerging markets strategist at UBS.
“In the United States, markets are grappling with lower chances of more policy easing while growth isn’t picking up to the extent that was expected.”
Emerging European equities fell 1.1%. The biggest losses were in Poland, where stocks lost 1.3% dominated by a 2.2% decline in giant copper producer KGHM.
Aside from world growth worries, a big issue for copper producers, KGHM also will bear the brunt of a new tax on mining which was signed into law this week.
Russian stocks fell 1%, dampened by the prospect of joint US and European action to release strategic oil reserves that would hit world crude prices.
However, traders said Russia’s entire bond curve was trading well after its $7 issue this week, with yields on the new five-year and 10-year bond tranches tightening modestly.
Russia placed 5-, 10- and 30-year Eurobonds at spreads of 230-250 basis points over US Treasuries, with demand reaching $25bn.
The Turkish lira hit three-week highs to the dollar as the central bank kept liquidity tight through competitive repo auctions and the so-called exceptional days policy.
Since last week, total lira funding stock has dropped by 11 billion lira. Bond yields fell to one-week lows in thin trade.
“If the lira does not recover significantly, the central bank will continue to tighten liquidity even after it ends the exceptional days policy. So the decline of bond yields will be limited in the short term,” said Tufan Comert, strategist at Garanti Securities in Istanbul.
Narain of UBS noted that the lira is supported by its implied FX yield of 8.2%, among the highest in emerging markets, while the rise in the oil price has been stemmed for now.
But he said: “Positive positioning in Turkey is very tactical... Central bank policy tightening is still piecemeal and doesn’t inspire much confidence for the long term.”
Central bank policy meetings were in focus. The rand fell 0.8% to the dollar, but bonds were steady ahead of a central bank rate decision. It was expected to keep interest rates on hold and an announcement was due at 15:00 local time.
Czech rates were also forecast to remain steady, but the crown fell 0.2% against the euro. The Romanian leu fell 0.2% to a 10-day low versus the euro after Romania’s central bank cut interest rates for the fourth month running, to a record low 5.25%.
Emerging equities on the MSCI index fell for the second day in a row, losing 0.9% after data highlighted that while the US economy is slowly improving, it is not building up much momentum.
Sentiment was also hit by heavy losses on Chinese stocks, which closed at 10-week lows after disappointing company results suggested the slowdown in the world’s No 2 economy is hurting profitability more than expected.
China comprises almost a fifth of the emerging index.
“Markets are very concerned about the trajectory of the Chinese slowdown,” said Manik Narain, emerging markets strategist at UBS.
“In the United States, markets are grappling with lower chances of more policy easing while growth isn’t picking up to the extent that was expected.”
Emerging European equities fell 1.1%. The biggest losses were in Poland, where stocks lost 1.3% dominated by a 2.2% decline in giant copper producer KGHM.
Aside from world growth worries, a big issue for copper producers, KGHM also will bear the brunt of a new tax on mining which was signed into law this week.
Russian stocks fell 1%, dampened by the prospect of joint US and European action to release strategic oil reserves that would hit world crude prices.
However, traders said Russia’s entire bond curve was trading well after its $7 issue this week, with yields on the new five-year and 10-year bond tranches tightening modestly.
Russia placed 5-, 10- and 30-year Eurobonds at spreads of 230-250 basis points over US Treasuries, with demand reaching $25bn.
The Turkish lira hit three-week highs to the dollar as the central bank kept liquidity tight through competitive repo auctions and the so-called exceptional days policy.
Since last week, total lira funding stock has dropped by 11 billion lira. Bond yields fell to one-week lows in thin trade.
“If the lira does not recover significantly, the central bank will continue to tighten liquidity even after it ends the exceptional days policy. So the decline of bond yields will be limited in the short term,” said Tufan Comert, strategist at Garanti Securities in Istanbul.
Narain of UBS noted that the lira is supported by its implied FX yield of 8.2%, among the highest in emerging markets, while the rise in the oil price has been stemmed for now.
But he said: “Positive positioning in Turkey is very tactical... Central bank policy tightening is still piecemeal and doesn’t inspire much confidence for the long term.”
Central bank policy meetings were in focus. The rand fell 0.8% to the dollar, but bonds were steady ahead of a central bank rate decision. It was expected to keep interest rates on hold and an announcement was due at 15:00 local time.
Czech rates were also forecast to remain steady, but the crown fell 0.2% against the euro. The Romanian leu fell 0.2% to a 10-day low versus the euro after Romania’s central bank cut interest rates for the fourth month running, to a record low 5.25%.
