By Chris Vellacott
LONDON Aug 20 South African bank shares fell 2
percent on Wednesday after a credit ratings downgrade, while
Moscow stocks took a breather after an eight-day rally fuelled
by hopes that tensions over Ukraine would defuse.
MSCI's broader emerging equity index traded just off
three-year highs, hit on Tuesday when the market
tracked Wall Street higher.
South Africa's banking index fell heavily, however,
reacting to Moody's decision to downgrade four lenders citing a
lower likelihood of support from the central bank to protect
creditors after a debt crisis at African Bank.
Moody's cut by a notch the long-term local currency deposit
ratings for Standard Bank of South Africa, FirstRand
, Nedbank and Absa Bank, the local operation
for Barclays Group Africa.
The ratings agency said it was adjusting its view following
the $1.6 billion bailout of African Bank by the South African
"Maybe this (ratings move) is a little bit premature, they
probably could have waited another six or so months to see what
happened," Richard Segal, emerging markets strategist at
Jefferies in London said.
"If you look at most of the other key banks, they are much
more bullet proof. They have far more diversified businesses,
they are funded mostly by deposits rather than wholesale
funding, they have international business and I sincerely doubt
that the Reserve bank would recommend a bail-in (for these
The rand weakened 0.4 percent against the dollar, its
losses picking up after data showed consumer inflation slowing
to 6.3 percent year-on-year in July, below market expectations
and casting doubt on the likelihood of a rate cut next month.
Investors are increasingly nervous about the lengthening
list of problems in South Africa, including weak growth,
inflation, high household debt, in addition to the bank bailout
and chronic labour unrest.
The cost of insuring the country's debt remained unchanged
from a day earlier, however, with 5-year credit default swaps at
177 basis points, according to financial data provider Markit.
Russian shares slipped after gains of about
10 percent in the past two weeks while the rouble slipped
0.3 percent versus the dollar.
Ukraine's President Petro Poroshenko and Russia's Vladimir
Putin will meet in Minsk next week to discuss the confrontation,
the latest diplomatic overture to resolve the conflict.
Norway's $885 billion sovereign wealth fund also appears to
believe the economic fallout from the Ukraine crisis will be
limited as it increased its exposure to Russia in the first half
of the year.
Elsewhere, Argentine dollar bond yield spreads over U.S.
Treasuries are likely to widen in reaction to President Cristina
Fernandez's late Tuesday announcement that she would aim to swap
recently defaulted dollar bonds for new debt governed by
This would help skirt a U.S. ruling that prevented the
country paying its creditors.
Argentine spreads stand at 766 bps over Treasuries, having
widened more than 100 bps since the end of July.
For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
(Additional reporting Marc Jones; editing by David Clarke)