| LONDON, April 14
LONDON, April 14 Emerging stocks pulled back
from last week's 4-1/2 month highs on Monday, weighed down by
renewed tensions over Ukraine, with Russian equities, bonds and
currency taking the biggest hit.
The Turkish lira also extended losses after a ratings
outlook cut at the end of last week.
After weeks of calm, Ukraine and Russia were again the main
focus of investors as fears grew of military action in eastern
Ukraine, where pro-Russian separatists have been occupying state
Moscow shares fell 1-2 percent , while the
rouble slumped 1 percent to 36 per dollar. Russia's
sovereign dollar bond due in September 2023 fell 1.6 points to
97.125 and its share of the EMBI Global bond
index widened 5 basis points over U.S. Treasuries, lagging other
Russia's default insurance costs hit a three-week high of
240 basis points, Markit data showed, and domestic rouble bond
"Markets are beginning to price in war... We're seeing quite
a lot of escalation in tensions," said Lars Christensen, head of
emerging markets at Danske Bank.
"Until we get a clear signal from Russia that they won't be
invading eastern Ukraine, we won't see a turning point for
Russian and Ukrainian assets."
Ukraine's dollar bonds were also softer, with sovereign bond
due in 2017 falling 2.5 cents to 93.375, a
three-week low. State energy firm Naftogaz due September 2014
lost around 1.5 points.
Political concerns also pressured Turkey's lira, which fell
0.9 percent to a one-week low of 2.1327 per dollar.
Moody's cut Turkey's sovereign rating outlook to negative on
Friday, citing political turbulence, external financing pressure
and weaker growth prospects.
Turkey's constitutional court rolled back the government's
efforts to tighten its grip on the judiciary, dealing a blow to
Prime Minister Tayyip Erdogan, who is mired in a corruption
scandal embroiling his inner circle.
The benchmark MSCI emerging equity index fell half
a percent, after enjoying four consecutive weeks of gains.
Cheap valuations and attractive yield in emerging markets
had attracted investor inflows in EM debt and equity funds of
$4.7 billion in the week to April 9, according to EPFR data.
But not all investors see the recent gains as a positive
development for the emerging world.
"Asset prices need to change the economic model of growth in
EM if policymakers don't bring the changes," said Manoj Pradhan,
head of global emerging market economics at Morgan Stanley.
"Turkey and South Africa have to go through the pain of
adjustment, and China and Russia and Brazil have much more to do
before they can think about a pick-up in their growth."
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)