By Walter Brandimarte and Carolyn Cohn
RIO DE JANEIRO/LONDON, Feb 3 Emerging-market
stocks extended a two-week sell-off on Monday as weak Chinese
manufacturing and services 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.
Concern about emerging markets' economic fundamentals are
growing as the U.S. Federal Reserve appears set to cut back
steadily on economic stimulus throughout the year, 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
Still, MSCI's main emerging equity index weakened
0.8 percent on the back of a 6.6 percent drop in January. The
Latin American portion of the index fell 1.4
percent, dragged down by stocks in Brazil, where the benchmark
Bovespa index slid 2.2 percent.
Latin American currencies were also weaker, with the
Brazilian real dipping 0.1 percent and the Colombian peso
dropping 1.3 percent.
"The question is at which point the weakening process will
fade and we see normalization," said Luis Costa, emerging
markets strategist at Citi. "We don't think we're there yet. The
process of establishing real rates (interest rates minus
inflation) in emerging markets is half-way through, and we may
see further interest rate hikes."
India, South Africa and Turkey all raised interest rates
last week in hopes of enticing dollar inflows and bolstering
their currencies, and markets are speculating Hungary may also
need to hike.
The lira dropped 0.5 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 more than 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, although the
forint steadied above the two-year lows it reached
against the euro last week.
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 0.5 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
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
Key Latin American stock indexes and currencies at 1630 GMT
Stock indexes daily % YTD %
Latest change change
MSCI LatAm 2,846.30 -1.66 -9.58
Brazil Bovespa 46,679.31 -2.01 -9.37
Chile IPSA 3,431.10 -0.24 -7.25
Chile IGPA 17,094.36 -0.17 -6.21
Argentina MerVal 6,080.59 1.02 12.79
Colombia IGBC 11,927.03 -0.42 -8.75
Peru IGRA 15,428.45 -0.15 -2.06
Venezuela IBC 2,824.93 -0.11 3.23
Currencies daily % YTD %
Brazil real 2.4140 -0.11 -2.37
Mexico peso 13.4450 -0.67 -3.09
Chile peso 559.9000 -0.75 -6.04
Colombia peso 2056.0000 -1.98 -6.03
Peru sol 2.8230 -0.04 -1.06
Argentina peso 8.0275 -0.16 -19.12
Argentina peso 12.4500 1.61 -19.68