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Emerging markets sell-off pain

Monday, Jan 27, 2014 - 01:43

Jan 27 - Emerging market equities have posted their largest drop in five months causing a global stocks sell-off. Sonia Legg looks at the reasons for the storm.

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There've been protests in Ukraine, Thailand and Turkey in recent days, not to mention a looming financial crisis in Argentina. Each country's issues are different but they've partly lead to a single problem -- a global sell-off of risky assets in emerging markets. David Bloom is head of currency strategy at HSBC. SOUNDBITE: HSBC Head of Currency Strategy, David Bloom, (English): "The Turkish situation has nothing to do with South Africa, that is nothing to do with Ukraine, the slowdown that we are partially seeing in China or Thailand. But when you add them up it looks like a crisis. So the problem with them all being very different is that there is no single solution." The prospect of the U.S. Federal Reserve scaling back on bond buying later this week hasn't helped, particularly in countries like Argentina. But, unlike last year's sell-off, it's not the prime reason for it. SOUNDBITE: HSBC Head of Currency Strategy, David Bloom, (English): "Before the catalyst was the higher price of money but actually now emerging markets are selling off causing U.S. bond yields to go lower, so you can see the source of the problem is not somewhere else but directly in emerging markets and that's what's really worrying the market." So could the sell-off hurt - particularly in fragile Europe - where tiny growth shoots have only just started to emerge? SOUNDBITE: HSBC Head of Currency Strategy, David Bloom, (English): "We've upgraded the GDP figures from 0.4 to 0.8%. There's no reason to go around the room whooping because of that, as it is still pretty feeble, but I think it is there - the European recovery - and it is not relying on the whole EM story at all." Turkey, on the other hand, certainly is -- the lira has been leading the rout in emerging currencies as a corruption scandal continues to rock the government. It hit a record low against the dollar for a while on Monday and the central bank has called an emergency meeting.

Emerging markets sell-off pain

Monday, Jan 27, 2014 - 01:43

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