LONDON Jan 31 Emerging markets steadied in
holiday-thinned trade on Friday, with currencies such as the
rouble and lira trading just off multi-year lows after dramatic
central bank action to counter the biggest sell-off in years.
Many markets in Asia were closed for the lunar New Year
holidays, cutting trade volumes. MSCI's benchmark equity index,
of which China comprises a fifth, traded just off 4-1/2 month
lows though stock markets in Russia and Turkey were
almost 1 percent lower .
Battered emerging markets steadied late on Thursday in what
many analysts said was a rebound from oversold levels, helped
also by a 1 percent jump on Wall Street which had fallen four
out of the five previous sessions.
The rouble which had rallied briefly after hitting near
five-year lows to the dollar and record low to a
euro-dollar basket, weakened again. But it stayed off the
troughs, possibly supported by the central bank's plans for
"unlimited interventions" should the rouble stray outside a
Analysts said that had induced the closure of short rouble
positions but reckon pressure will stay on the central bank as
well as its peers elsewhere in emerging markets.
"It's calm today and liquidity is thin but the underlying
fears are very much there. What's driving this is the fear of a
Chinese slowdown and what I want to see is some kind of policy
action from the People's bank of China," said Lars Christensen,
chief emerging markets analyst at Danske Bank.
Weaker-than-expected Chinese factory numbers this week have
confirmed the slowdown in the world's No. 2 economy, adding to
jitters from the U.S. Federal Reserve which confirmed on
Wednesday it would shave another $10 billion from its monthly
India's central bank governor Raghuram Rajan has slammed
what he called a breakdown in global monetary coordination,
saying developed countries could not "wash their hands" of the
turmoil caused in emerging economies by their actions.
Christensen said that in the absence of calming action from
the PBOC, action from emerging central banks, interventions or
policy tightening, was unlikely to be effective.
"Russia has indicated they will defend the rouble vigorously
(but) my fear is a repeat of 2008 when they spent $200 billion
to defend an artifical rouble peg," he added.
The Turkish lira firmed half a percent after a big
rate rise from the central bank made it too expensive to run
short positions on the currency for too long. The lira is up 3
percent this week, its biggest weekly gain since end-2011.
Options markets show that the currency sell-off may have
further to run, with near-term implied volatility on the lira
for instance lira spiking to five-year highs this
week. Implied volatility, a gauge of how sharp price swings will
be, have eased from the highs but remain elevated on a range of
Pressure is mounting on other emerging central banks to
defend their currencies form excessive volatility, with Mexico
likely to warn later on Friday that it is ready to raise
interest rates if needed. The peso is trading just off 18-month
The sell-off has not spared even relatively robust emerging
economies such as Mexico, and data from Boston-based fund
tracker EPFR Global, released to banks late on Thursday showed
that $10 billion had fled emerging market funds in the week to
On debt markets, domestic emerging bond yields have risen 30
basis points and sovereign dollar bond yields have risen 40 bps
this week but were steady on Friday.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )