| LONDON, July 25
LONDON, July 25 Russian shares opened lower on
Friday, depressed by the threat of deeper economic sanctions in
retaliation for Moscow's role in Ukraine while broader emerging
equities stayed just off 17-month highs hit earlier this week.
Moscow's dollar-denominated RTS share index and its
rouble-traded equivalent the MICEX were both around 1
percent lower as European Union governments mulled what steps
they will take. The market is down 2 percent this week and looks
set to extend last week's near-8 percent loss.
However, the rouble held its ground, heading for a
small weekly gain against the dollar, which analysts attributed
to expectations sanctions will be limited in spite of recent
escalations in Russia's diplomatic standoff.
"I think the markets are seeing that the EU is looking at
tougher measures and will move gradually but they also know that
the Russian markets are resilient. We don't expect there to be
significant financial market disruptions such as default," said
Neil Shearing, chief emerging markets economist, at Capital
The rouble is supported by high interest rates and bond
yields of around 9 percent and the central bank is expected to
leave rates unchanged later on Friday as it grapples with
On Thursday, ambassadors of the 28-nation EU discussed ways
to limit Russian access to capital markets, arms and energy
technology following the downing of a Malaysian airliner in an
area of eastern Ukraine controlled by Moscow-backed separatists.
Earlier, the United States said Russia was firing artillery
across its border, targeting Ukrainian military positions, and
that Moscow intends to deliver heavy weapons to separatist
The cost of insuring Russian sovereign debt against default
rose, with five-year credit default swaps up 4 basis points from
the previous day, to 212 bps, according to financial data
Ukrainian CDS moved up 9 bps to 796, a one-month high, as
political uncertainty weighed following the resignation of the
country's prime minister who berated politicians for failing to
pass legislation to take control over an increasingly precarious
Ukraine's 2017 sovereign dollar bond extended losses,
falling almost half a cent to 101 after the previous day's 2
cent fall in reaction to the government's resignation
More broadly, the MSCI emerging stocks index was trading 0.2
percent lower but clinging close to 17-month highs as investors
continued to bet on the U.S. Federal reserve persisting with
loose monetary policy.
"Policy in the developed world is very loose and
expectations remain for it to be loose. As it happens we think
that the Fed will move slowly but ultimately rates will be
higher than most of the markets currently expect and that
remains a key risk for emerging markets," Shearing said.
Data from EPFR Global showed in the week to July 23,
emerging market-focused equity funds saw $78 million of outflows
though bond funds received $260 million inflows.
Save for one week of outflow in June, emerging bond funds
have enjoyed 20 weeks of inflow, banks said. Barclays analysts
said this pattern suggested "a solid degree of confidence by
investors bordering on complacency."
In Turkey, the lira was lower against the dollar
after the central bank governor raised the prospect on Thursday
of cutting rates further.
Profit taking brought the main Istanbul share index
off 13-month highs seen earlier in the week.
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 Spriha Srivastava and Sujata Rao;
Editing by Ruth Pitchford)