August 5, 2014 / 9:02 AM / 3 years ago

EMERGING MARKETS-Stocks slide on weak China, Russia PMIs

By Jamie McGeever
    LONDON, Aug 5 (Reuters) - Emerging stocks fell on Tuesday
after a survey showed China's service sector stagnated in July,
its worst performance in nine years and highlighting risks to
the world's developing market powerhouse.
    Russian stocks lagged after figures showed the country's
service sector shrank last month, marking the fifth straight
month of contraction. 
    The fragile growth picture painted by these reports weighed
on a market nervous about the outlook for the timing and pace of
U.S. monetary policy tightening, and military, economic and
diplomatic tensions between Russia and Ukraine.
    "Growth is still weak in emerging markets ... as
fundamentals remain weak despite the developed market recovery,"
wrote Morgan Stanley analysts in a note to clients on Tuesday.
    Chinese stocks  slipped around 0.2 percent,
retreating from Monday's high for the year, while Russia's main
indices slid 1 percent .
    The surprisingly weak purchasing managers index from China
suggested more government support may be needed to keep the
economy on track for 7.5 percent growth, while the Russian PMI
highlighted businesses' nervousness about the Ukraine conflict
and effect of Western sanctions.  
    But the links between China's purchasing managers index and
actual economic activity data are not that strong, said Neil
Shearing, chief emerging markets economist at Capital Economics.
    "Last month's strong quarter two activity data dispelled
fears about a hard landing, so the markets have taken news of
the weak purchasing managers index in their stride," he said. 
    The MSCI emerging equities index fell 0.2 percent,
easing further from last week's near three-year high. 
    India's central bank kept interest rates steady at 8 percent
as expected, but warned of inflationary risks should a shortfall
in monsoon rains lead to a surge in food prices. 
    The rupee strengthened around a third of a percent to 60.75
per dollar, moving further away from a three-month low
struck on Friday.
    Other emerging market currencies held their ground against
the dollar on Tuesday. The Turkish lira rose around a third of a
percent to 2.125 per dollar and the South African was
flat at 10.65.
    For GRAPHIC on emerging market FX performance 2014, see
    For GRAPHIC on MSCI emerging index performance 2014, see
    For GRAPHIC on MSCI emerging Europe performance 2014, see
    For GRAPHIC on MSCI frontier index performance 2014, see
    For CENTRAL EUROPE market report, see 
    For TURKISH market report, see 
    For RUSSIAN market report, see )

 (Additional reporting by Andrew Winterbottom, editing by John

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