EMERGING MARKETS-Stocks trim losses; currencies recover from selloff

Tue Feb 4, 2014 9:23am EST

By Walter Brandimarte and Natsuko Waki
    RIO DE JANEIRO/LONDON, Feb 4 (Reuters) - Emerging market
stocks trimmed losses on Tuesday after hitting a five-month low,
while most currencies rebounded as investors paused a selloff
that had been triggered a day before by concern about Chinese
and U.S. growth prospects.
    MSCI's benchmark index for emerging market stocks 
slumped as much as 1.4 percent to its lowest level since last
August as investors extended Monday's selloff into Asia's and
Europe's trading hours.
    But the index trimmed losses as Latin American stocks
 opened higher, with Brazil's benchmark Bovespa
index gaining 0.8 percent even after data showed the
country's industry fared way worse than expected in December.
 
    Investors remained cautious, awaiting clues on whether the
U.S. Federal Reserve may slow down the pace of stimulus
withdrawal after U.S. manufacturing activity slowed sharply in
January.
    "Needless to say, slowing performance in the world's largest
economy raises fears about global economic growth at large. With
that in mind, hints at the possibility of a pause in the Fed's
'tapering' of QE asset purchases may boost risk appetite," Ilya
Spivak, currency analyst at DailyFX, wrote in a note.
    Emerging stocks and currencies have been under pressure as
analysts forecast the Fed will steadily cut back on its bond
purchases throughout this year, putting an end to the era of
cheap money that had been flooding emerging markets during the
past several years.
    
    CURRENCIES REBOUND
    Bets that the Fed could be slower at unwinding stimulus
already supported emerging market currencies, with the Turkish
lira jumping 1.4 percent and the South African rand
 trading about 1 percent higher after hitting a five-year
low last week.
    The Brazilian real gained 1.1 percent, also supported
by a central bank decision to start rolling over $7.4 billion in
currency swaps that expire early next month, a strategy to
provide investors with ample hedge against losses in the foreign
exchange market. 
    The Russian rouble fell as low as 35.5 per dollar,
bringing its year-to-date losses to around 7 percent, but then
erased losses to gain 0.9 percent to 35.1.
    "Tactically the markets are starting to look oversold and a
number of positives could come in and help. For instance no one
should be worried about U.S. tightening policy this year," said
John-Paul Smith, head of emerging equities at Deutsche Bank.
    
    ROMANIA CUTS RATES
    Bucking a trend of tighter monetary policies across emerging
markets, Romania's central bank cut its benchmark interest rate
by a quarter percentage point to a record low of 3.5 percent,
probably ending a cycle that has brought down the country's
borrowing costs by 175 basis points since July. 
    Romania's decision "serves as a reminder that not all
emerging markets have suffered heavily during the recent bout of
market turmoil," William Jackson, an economist at Capital
Economics, said in a research note.
    Romania's leu gained around 0.7 percent, showing
little reaction to the widely-expected decision by the central
bank.
    
    Key Latin American stock indexes and currencies at 1355 GMT
    
     Stock indexes                   daily %    YTD %
                      Latest         change     change
 MSCI LatAm           2,856.08       0.91       -11.57
                                                
 Brazil Bovespa       46,525.99      0.82       -9.67
                                                
 Mexico IPC           0.00           0          -100.00
                                                
 Chile IPSA           3,397.73       0.13       -8.15
                                                
 Chile IGPA           16,960.42      0.1        -6.95
                                                
 Argentina MerVal     0.00           0          -100.00
                                                
 Colombia IGBC        11,847.58      0.00       -9.36
                                                
 Peru IGRA            15,073.42      0.15       -4.32
                                                
 Venezuela IBC        2,819.34       0          3.02
                                                
                                                
 Currencies                          daily %    YTD %
                             Latest  change     change
 Brazil real          2.4100         1.10       -2.21
                                                
 Mexico peso          13.3740        1.24       -2.57
                                                
 Chile peso           556.9000       0.57       -5.53
                                                
 Colombia peso        2047.6000      -0.05      -5.65
                                                
 Peru sol             2.8250         -0.04      -1.13
                                                
 Argentina peso       8.0000         0.19       -18.84

 Argentina peso       12.4500        1.61       -19.68