By Natsuko Waki
LONDON Jan 30 Investors on Thursday shrugged
off central bank efforts to shore up battered emerging markets,
selling stocks and bonds and further weakening tumbling
It added pressure on more countries to raise interest rates
to seek a halt to a major capital flight.
Fears about emerging economies intensified after the U.S.
Federal Reserve withdrew more of its monetary stimulus on
Wednesday and a measure of Chinese manufacturing hit a six-month
low earlier on Thursday.
The benchmark MSCI emerging equity index fell 0.8 percent
to a fresh 4-1/2 month low.
Large interest rate hikes from Turkey and a less-aggressive
rise in South Africa on Wednesday, along with a surprise
monetary tightening from India earlier this week, have failed so
far to halt the sell-off in emerging assets.
If the mood spreads, further portfolio outflows would
pressure growth in many emerging economies which are especially
reliant on external capital, potentially setting off a vicious
circle of investment outflows.
"The concern here comes with the fact that we've had major
emerging central banks resort to tighter policy rates to defend
their currencies, but have failed fairly miserably," said Abbas
Ameli-Renani, emerging market strategist at RBS.
"In general, central banks are being forced by the turn of
events, and now have their backs against the wall... We've only
scratched the surface here with EM flows, and there's a lot more
potential for outflows."
The Turkish lira fell more than 1 percent to 2.2810 per
dollar, approaching record lows set earlier this week and
fully erasing gains made after the central bank surprised the
market with a whopping 425 basis point rate hike.
Local stocks lost 1.3 percent. The lira's one-month
implied volatility shot above 20 percent on Wednesday,
its highest in nearly 5 years.
The South African rand also ignored a surprise 50 basis
point hike from the central bank on Wednesday, hitting a fresh
five-year low of 11.38 per dollar. The yield on benchmark
government bonds jumped 36 bps to 7.36 percent.
The pressure was expected to mount on other central banks
to act to counter inflation and support their currencies,
especially in Russia and Mexico.
"We are most likely only at the beginning of a global
monetary tightening cycle, where the weakest are being forced to
act first," SEB said in a note to clients.
Mexico's inflation has shot up well above the central bank's
limit this month, prompting the bank to say earlier this week it
is weighing whether monetary policy needs adjusting. The peso
hit an 18-month low against the dollar last week.
The Russian rouble hit a record low of 48.21 per euro on
Thursday and also fell to the lowest level since
March 2009 against the dollar.
The five-year Russian government bond yield hit a
16-month high, with the yield rising 70 basis points this week
Ukraine's hryvnia held steady near Wednesday's record low
against the dollar while the country's government bonds
fell across the board .
The fate of a $15 billion bailout package from Russia is
uncertain. Russian President Vladimir Putin said the country
would wait until Ukraine forms a new government before fully
implementing the deal that Kiev urgently needs.
Putin left open the timing of the next aid installment while
Kiev struggles to calm more than two months of turmoil since
President Victor Yanukovich walked away from a treaty with the
The Hungarian forint fell 1 percent to a fresh two-year low
of 312.65 per euro, extending losses made after the
country's central bank surprised the market with a 15 bps rate
cut last week.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )