LONDON, July 3 Emerging stocks dropped 2 percent
on Wednesday on worries about Chinese growth and an end to U.S.
monetary stimulus. Egyptian stocks also fell before an army
deadline for the country's president to agree a power-sharing
deal with his rivals.
Emerging markets have recouped some losses in recent days
after weeks of falling prices on concern about an end to the
U.S. liquidity that has boosted riskier assets.
But nervousness is increasing ahead of a U.S. holiday on
Thursday and key U.S. employment data on Friday.
Chinese stocks fell more than half a
percent and other Asian stocks dropped after data showing growth
in China's services and consumer sectors remained modest in
The MSCI emerging stocks index hit six-day lows,
with Russian stocks dropping 1.5 percent despite a rally
Brazilian stocks fell more than 4 percent to
four-year lows on Tuesday, their biggest one-day drop in nearly
two years, after industrial output data fell twice as much as
expected in May.
"A lot of longer-term (emerging market) investors are just
realising that they are in an asset class that has
underperformed U.S. equities by 50 percent in recent years,"
said John Paul Smith, head of emerging market equity strategy at
"The structural underpinnings are disintegrating before
Emerging sovereign debt spreads widened 6 basis points to
347 bps, but remain nearly 50 bps narrower than a week ago,
enabling Nigeria to issue a $1 billion bond on Tuesday.
Egyptian stocks fell 1.7 percent at the open and the
pound traded at record lows before a 1500 GMT deadline
set by the head of Egypt's armed forces for President Mohamed
Mursi to agree a power-sharing deal. The central
bank has told banks to close their branches three hours early.
Illiquid Egyptian five-year credit default swaps eased 3
basis points to 875 bps, according to Markit, after hitting
record highs above 900 bps on Monday.
Egyptian dollar bonds have posted negative returns of 19
percent this year on JP Morgan's emerging sovereign bond index
Emad Mostaque at Noah Capital Markets recommended going
neutral on Egyptian equity exposure.
"The Egyptian pound could be in very short supply again soon
and the pound will likely devalue," he said in a note.
The zloty was steady before an expected Polish
Turkish stocks and the lira fell after
higher-than-expected inflation data.