LONDON: Emerging market shares were back under pressure on Tuesday as a fresh bout of weakness in commodity markets fed festering worries about the health of the global economy.
A third straight day of gains for Chinese stocks had looked to have got the EM complex off to a solid start to the day, but the mood quickly soured as oil, metals markets and stocks across Europe buckled in virtual unison.
South African and Russian markets led the way down with falls of 1.6 and 1.1 per cent respectively due to their heavy exposure to commodities.
Polish, Hungarian, Czech and Romanian shares also dropped to put MSCI’s benchmark global emerging market index in the red for a second day and down 0.5 per cent.
“Overnight Asian markets were relatively OK but now markets have taken a turn for the worse again,” said Peter de Bruin an emerging market economist at ABN Amro in Amsterdam.
“Some firms related to steel production have shown weak results today but generally it is fear over emerging markets and global growth again.”
Among eastern Europe’s currency markets, the Polish zloty and Hungarian forint inched to one-month highs against the euro
as expectations continued to build of another large dose of stimulus from the European Central Bank.
Though they are not direct beneficiaries of the ECB’s support there is plenty of spillover for eastern Europe’s markets from Mario Draghi and his colleagues’ actions.
Hungarian and Czech 10-year yields, a proxy of their government’s borrowing costs, are currently at the lowest since May.
Hungary’s central bank meets later in the day. It is widely expected to leave interest rates unchanged at 1.35 per cent.
However, there will be focus on its new economic forecasts, especially with the country currently a central routeway for Syrian refugees heading to Europe.
The Turkish lira firmed 0.3 per cent against a broadly steady US dollar
Turkey’s central bank also meets later. It too is expected to keep its rates unchanged but investors are hoping it will signal readiness to clamp down on inflation which remains above its 7 per cent upper target band.
“The only thing that could happen [today] is the bank could show it is taking a step towards more conventional monetary policy,” said Ilan Solot, a strategist at Brown Brothers Harriman.
Emerging assets also remain under pressure from the likelihood of a US Federal Reserve rate rise before end-2015 and expectations that flash China factory PMI due on Wednesday will show activity languishing near 6-1/2-year lows.
Though it looked to have flattened in European trading the dollar had tested a 12-day high in Asia which had continued to take its toll on hard pressed currencies like Malaysia’s ringgit
which has tumbled on the back of a deteriorating economy and government corruption scandal.
In emerging Europe, the Polish zloty and Hungarian forint were a tad lower against the dollar but inched to one-month highs against the euro.
Emerging Markets Prices from Reuters
Equities Latest Net Chg % Chg % Chg on year
Emrg Mkt Indx 811.71 -3.92 -0.48 -15.12
Czech Rep 974.61 -8.99 -0.91 +2.95
Poland 2158.10 -20.17 -0.93 -6.82
Hungary 21132.40 -106.43 -0.50 +27.04
Romania 7162.19 -50.73 -0.70 +1.12
Greece 682.38 -11.16 -1.61 -17.41
Russia 798.63 -10.15 -1.25 +1.00
South Africa 44704.21 -675.71 -1.49 +1.67
Turkey 75490.62 -370.09 -0.49 -11.93
China 3186.32 +29.78 +0.94 -1.49
India 25684.02 -508.96 -1.94 -6.60
Currencies Latest Prev Local Local
close currency currency % change % change in 2015
Czech Rep 27.02 27.03 +0.01 +2.32
Poland 4.19 4.19 -0.14 +2.24
Hungary 310.11 310.13 +0.01 +2.05
Romania 4.42 4.42 -0.05 +1.36
Serbia 119.96 120.03 +0.06 +1.16
Russia 66.24 66.03 -0.32 -12.37
Kazakhstan 262.00 270.18 +3.12 -30.25
Ukraine 21.65 21.87 +1.00 -27.17
South Africa 13.57 13.46 -0.78 -14.77
Kenya 105.55 105.30 -0.24 -14.40
Israel 3.93 3.93 -0.01 -1.04
Turkey 3.01 3.01 -0.19 -22.50
China 6.38 6.37 -0.12 -2.67
India 65.84 65.68 -0.24 -4.27
Brazil 3.99 3.99 +0.00 -33.33
Mexico 16.74 16.66 -0.47 -11.92
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 429 5 .09 6 73.91 1
All data taken from Reuters
Currency percent change calculated from the daily US close at 2130 GMT.