EMERGING MARKETS-Stocks, currencies extend slide on Chinese, US data

Mon Feb 3, 2014 3:02pm EST

By Walter Brandimarte and Carolyn Cohn
    RIO DE JANEIRO/LONDON, Feb 3 (Reuters) - Emerging-market
stocks extended a two-week sell-off on Monday as weak Chinese
and U.S. manufacturing data weighed on shares, while the
currencies of South Africa and Turkey weakened after
policymakers poured cold water on expectations of higher
domestic interest rates. 
    January data showing China's factory growth eased to a
six-month low, while its services sector slowed to a five-year
low, increased fears that the world's second-largest economy
will demand less of the commodities exported by many developing
countries. That would reduce their growth prospects and, in some
cases, aggravate their current account deficits. 
 
    Signs of a slowdown in global growth were compounded by data
showing U.S. manufacturing activity sharply lost speed in
January. 
    Concern about emerging markets' economic fundamentals are
growing as, despite the recent data, the U.S. Federal Reserve
appears set to cut back steadily on economic stimulus,
drastically reducing the amount of cheap money that had been
flooding developing countries over the past several years.
    Trading volumes were thinner than normal, however, as many
Asian markets, including China, were shut for the lunar new year
holidays. In Latin America, Mexican markets were closed for a
local holiday.
    Still, MSCI's main emerging equity index weakened
1.2 percent on the back of a 6.6 percent drop in January. The
Latin American portion of the index fell 2.7
percent, dragged down by stocks in Brazil, where the benchmark
Bovespa index plunged 3.1 percent.
    Latin American currencies were also weakened, with the
Brazilian real closing 1 percent down and the Mexican
peso dropping 1.3 percent in overseas trading.
    "China is showing a reasonable slowdown in the past few
economic data," said Leandro Silvestrini, an equities analyst
with InTrader brokerage in Sao Paulo. "For a more fragile
country such as Brazil, which has strong commercial ties with
them, what was bad just gets worse."
    In an attempt to curb dollar outflows that have been
weakening emerging market currencies, many analysts bet more
developing countries have no option but to raise interest rates,
following the examples of India, South Africa and Turkey last
week.
    The lira dropped 1 percent on Monday, however, after
Turkish Economy Minister Nihat Zeybekci said he did not expect
last week's interest rate hikes to endure for long.
 
    The rand plunged about 1 percent and South African
bonds hit session highs after Reserve Bank Governor Gill Marcus
said market bets that policymakers will increase interest rates
by up to 200 basis points this year are exaggerated.
 
    
    BRAZIL INTERVENES IN DEBT MARKET
    In an attempt to stabilize prices of local government debt
in the secondary market, Brazil's Treasury bought back 2 billion
reais ($833 million) worth of fixed-rate LTN bonds in an
extraordinary auction, about half the amount it had initially
offered to repurchase.
    Yields paid on Brazilian interest-rate futures contracts rose after the auction as traders said the Treasury's
strategy failed to calm the market. 
    Hungary's five-year credit-default swaps rose to 5-month
highs at 286 basis points, according to Markit, even as the
country's manufacturing sector gained speed in January.
 
    Hungarian stocks fell 2.1 percent, while the forint
 weakened 0.5 percent against the euro.
    Hungary is considered one of the central European economies
most exposed to contagion from the emerging-market sell-off
because of its high debt and an aggressive rate-cutting cycle
that has taken interest rates to a record low 2.85 percent.
    "Investors do not take a particularly favorable view of
either the Hungarian political establishment or the Hungarian
central bank, and they are determined to challenge their easing
bias," said Gaurav Saroliya, central and eastern European
strategist at Unicredit.
    A Hungarian debt auction last week had to be cut short. 
    Russia's rouble weakened 0.7 percent after PMI data
showed Russian manufacturing shrinking for the third month in a
row. South Africa's PMI also stayed below the 50 threshold that
denotes expansion.
    The Ukrainian hryvnia fell half a percent to fresh
four-year lows as embattled President Viktor Yanukovich returned
to work after four days of sick leave.  
    Ukrainian five-year credit-default swaps rose as high as
1,050 bps, according to Markit, their highest since
mid-December, before Ukraine got a Russian bailout. 
    Emerging-market sovereign debt spreads  
widened 3 basis points, extending last month's 50 basis-point
widening.
    
    Key Latin American stock indexes and currencies at 1920 GMT

     Stock indexes                     daily %     YTD %
                        Latest         change      change
 MSCI LatAm             2,816.53       -2.68       -9.58
                                                   
 Brazil Bovespa         46,147.52      -3.13       -10.41
                                                   
 Mexico IPC             40,879.75      -0.31       -4.32
                                                   
 Chile IPSA             3,402.27       -1.08       -8.03
                                                   
 Chile IGPA             16,982.34      -0.82       -6.83
                                                   
 Argentina MerVal       6,078.35       0.99        12.75
                                                   
 Colombia IGBC          11,895.34      -0.68       -9.00
                                                   
 Peru IGRA              15,241.72      -1.36       -3.25
                                                   
 Venezuela IBC          2,819.34       -0.3        3.02
                                                   
                                                   
 Currencies                            daily %     YTD %
                               Latest  change      change
 Brazil real            2.4364         -1.03       -3.27
                                                   
 Mexico peso            13.5160        -1.19       -3.60
                                                   
 Chile peso             560.1000       -0.79       -6.07
                                                   
 Colombia peso          2046.5000      -1.53       -5.59
                                                   
 Peru sol               2.8250         -0.11       -1.13
                                                   
 Argentina peso         8.0050         0.12        -18.89

 Argentina peso         12.4500        1.61        -19.68
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.