LONDON, Aug 21 (Reuters) - 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 August.
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 Wednesday.
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 inflation.
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)