* China's slowdown, US tapering fears weigh on sentiment
* Political risk exacerbates losses in Turkey
* MSCI world stock index at lowest level in more than month
By Natsuko Waki
LONDON, Jan 27 Emerging markets led a global
sell-off in risky assets on Monday as European stocks followed
sharp falls in Asia and safe-haven assets such as the yen and
Concerns about China's economic slowdown and its shadow
banking sector, combined with expectations that the Federal
Reserve will scale back its bond buying further, are piling
pressure on emerging markets dependent on external financing.
Political risks in Ukraine, Turkey and Thailand as well as a
looming financial crisis in Argentina are compounding the
problem of emerging markets in a week when the Fed is expected
to cut its monthly bond purchases by another $10 billion.
Emerging markets experienced a similar synchronised sell-off
last May when the Fed initially suggested stimulus wind-down.
But this time, local factors are playing a bigger role.
"The question is one of contagion and risks and that's what
we're living through at the moment. You can see the source of
the problem is not somewhere else but directly in emerging
markets. That's really worrying the market," said David Bloom,
head of currency strategy at HSBC.
MSCI world equity index fell 0.6 percent to
394.15, its lowest level in more than a month, following Asia's
decline of 1.6 percent.
China's shadow banking sector, a key source of financing for
local corporates, is under the spotlight.
A Chinese trust firm said it had reached an agreement to
resolve a troubled high yield investment product, just days away
from what could have been a precedent-setting default in China's
shadow banking system.
The Turkish lira, which has been leading the rout in
emerging currencies amid a corruption scandal that has rocked
Prime Minister Tayyip Erdogan's government, hit a record low of
2.39 to the dollar before regaining some ground after the
central bank said it would hold an emergency meeting on Tuesday.
The benchmark emerging stock index hit a 4-1/2
month trough, falling 1.7 percent on the day to be on track for
the biggest one-day fall since August.
Emerging stocks are the worst performing asset so far this
year, with year-to-date losses of 5.2 percent.
U.S. stock futures are pointing to a firmer open,
however, after the S&P 500 index last week posted its
worst week since June 2012.
European stocks are down 0.7 percent. Banking
stocks lost more than half a percent.
A German media report citing an OECD study that showed
European banks have a combined capital shortfall of about 84
billion euros also hit sentiment.
"Sudden fears about emerging markets and also potential
capital shortfalls for some European banks are rattling
investors. People have been a bit complacent lately, so it's
quite logical to get a correction," said David Thebault, head of
quantitative sales trading, at Global Equities.
The yen hit a seven-week high of 101.77 per dollar
while gold also rose to a two-month high above $1,278 an ounce.
The 10-year U.S. Treasury yield hit a new
two-month low of 2.71 percent.
Bund futures were down 15 ticks.
The dollar was slightly stronger against a basket of