By Walter Brandimarte and Sujata Rao
RIO DE JANEIRO/LONDON Feb 27 Geopolitical
tensions drove Russia's rouble to five-year lows against the
dollar while pushing Ukraine's hryvnia 9 percent lower, but
Brazilian markets were supported by data showing the economy
grew far more than expected at the end of 2013.
Russia's defiant response to the political turmoil in
neighboring Ukraine spooked investors in Europe and Asia, with
Moscow quoted as saying fighter jets along Russia's western
borders had been put on combat alert.
Moscow has also said it would defend the rights of its
compatriots in a "strong and uncompromising" manner, while Kiev
warned the Kremlin against any troop moves in Crimea, which has
a big ethnic Russian population.
"People are drawing parallels with the 2008 Russia-Georgia
war," said Manik Narain, a strategist at UBS in London.
"There are definitely fears about geopolitics, (at a time
when) the general mood towards emerging markets is not great.
The concern is this could develop into a proper civil war in
Ukraine that splits the country."
While the ripples from Ukraine spread as far as Asia, the
biggest impact was felt closer to home.
The hryvnia hit a new low against the dollar, trading beyond
11 per dollar a day after the central bank said it was
no longer supporting the currency. Its year-to-date losses
amount to around 25 percent.
The country's credit default swaps rose 24 basis points,
according to Markit.
The crisis is taking a heavy toll on Russia, whose banks are
estimated to have a $28 billion exposure to Ukraine as well as
major trade ties, including gas exports.
The rouble fell as low as 36.11 per dollar and hit a
record low against a dollar-euro basket, staying just
off a record low to the euro.
Russian stocks fell 1.4 percent in their biggest
one-day loss since early-January, led by VTB Bank whose shares
plunged more than 3 percent. State-controlled Sberbank
and gas monopoly Gazprom lost more than 1
percent on the day.
"The rouble will be the main victim here on the back of the
situation in Ukraine. There's a lot of economic ties and
political involvement as well," said Abbas Ameli-Renani, a
strategist at RBS.
While many political risk analysts reckon an outright
military conflict is unlikely, Ameli-Renani predicted "a period
of over-reaction" on financial markets.
"Increasingly, given the border shared with Hungary and
Poland, central Eastern countries are coming into focus, as seen
in the reaction of the zloty yesterday," he said.
The Polish zloty, central Europe's most liquid currency,
fell as much as 0.3 percent against the euro to
two-week lows after losing 0.6 percent in the previous session.
Turkey's lira fell for the fourth straight session, trading
down 0.7 percent to 2.24 per dollar and also hit by domestic
problems, with audio recordings appearing to implicate Prime
Minister Tayyip Erdogan in corrupt dealings having emerged this
week. He denies the accusations and said the tapes are fake but
the affair is causing jitters before local elections in March.
BRAZIL ECONOMY SURPRISES
Brazilian markets resisted the wider emerging market
turbulence after data showed the economy grew 0.7 percent in the
fourth quarter, above the 0.3 percent forecast by economists.
Full-year growth reached 2.3 percent, compared with 1.0 percent
in 2012 and 2.7 percent in 2011.
The numbers dispelled fears of a technical recession at the
end of the year and suggested the central bank has still some
more room to tighten monetary policy after reducing the pace of
interest-rate hikes to 0.25 percent on Wednesday night.
"Coming out on the heels of the Brazilian central bank's
decision yesterday to slow the pace of interest rate hikes, this
report suggests room for tightening still exists as 2014
proceeds," Bill Adams, senior economist with PNC, said in a
"Inflation still seems to outweigh slower growth as the
biggest risk to the outlook," he added.
Brazil's benchmark Bovespa index rose about 1
percent while the real gained 0.15 percent to 2.3476 per
MSCI's broader emerging equity index rose 0.4
percent thanks to a rebound in Chinese shares. While the
Chinese yuan extended its recent slide initially, it later
recouped the losses, helping to calm Asian markets.