LONDON Aug 21 Emerging equities snapped an
eight-day streak of gains on Thursday as weak Chinese data and
hawkish signals from the Bank of England and U.S. Federal
Reserve dampened the appeal of holding emerging assets.
The MSCI emerging equity index was down 0.6
percent in early London trading, pulling back from three-year
highs seen earlier in the week.
Rising rates in the United States could prompt heavy flows
of investment out of emerging markets where investors flocked in
search of higher returns. A stronger dollar also erodes the
appeal of holding emerging market currencies.
Minutes from the Fed's last meeting fuelled speculation that
interest rates could soon start rising and news also emerged
that two Bank of England policymakers had voted for higher
interest rates earlier this month.
"The signals are not very encouraging with the Fed heading
for the end of QE (quantitative easing) and also in the UK, the
recent vote potentially pushed towards increasing interest
rates. All that raises pressure on emerging markets," said Regis
Chatellier, a strategist at Societe Generale.
"Earlier people would (swallow) the bad news as there was a
lot of money around and supportive monetary conditions but that
won't be the case any more."
Weak data from China also compounded squeamishness about
emerging market assets.
China shares posted their worst daily loss
in a week on Thursday after a preliminary private survey showed
growth in China's factory sector slowed to a three-month low in
The HSBC/Markit Flash China Manufacturing Purchasing
Managers' Index (PMI) fell to 50.3 from July's 18-month high of
51.7, missing a Reuters forecast of 51.5.
But Russian stocks brushed off the impact of the Chinese
data and extended a nine-day rally as investor fears of dire
consequences from the Ukraine conflict continue to ease amid a
stepping up of diplomatic efforts to defuse tensions.
The dollar-denominated RTS index was up 0.2 percent
to 1,260 points, while the rouble-based MICEX traded 0.4
percent higher at 1,453 points.
The cost of insuring exposure to Russian debt via 5-year
credit default swaps dropped 3 basis points on Thursday to 229
bps, according to financial data provider Markit.
Ukrainian CDS also fell to 934 bps, from 937 bps on
Meanwhile, South Africa's rand steadied to snap a
four-day losing streak against the dollar as it reeled from a
downgrade of the country's leading banks and stubbornly high
Argentina's peso is expected to resume falls seen on
Wednesday that pushed the black market rate to an all time low
of 13.5 to the dollar following government efforts to skirt a
U.S. court ruling on its obligations to bond holders.
Argentine bond yield spreads over Treasuries may also widen
further after they blew out 26 bps on Wednesday.
Israel's shekel was at a new six month low against
the dollar, pressured by expectations of a second interest rate
cut in a row at the central bank's Monday meeting and fallout
from the latest conflict in Gaza.
Israeli interest rates are at 0.5 percent. Speculation has
also built that the bank will introduce a cap for the shekel
exchange rate after the currency hit three-year highs early
August though most analysts reckon this is unlikely.
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 by Sujata Rao Editing by Jeremy Gaunt)