LONDON Oct 12 Emerging stocks slipped to nearly
two-week lows on Wednesday, hit by dollar strength and global
equity falls, while South African assets hovered near multi-week
lows on worries the country's finance minister could be forced
MSCI's emerging equity index was also pressured by
continued weakness in one of its biggest constituents, South
Korea, where Samsung shares hit a new one-month low, keeping
Seoul stocks and the Korean won at three-week lows
Another big index loser was Thailand where stocks fell a
further 3.6 percent to seven-month lows while the baht
fell another 0.8 percent extending falls triggered by
news that the 88-year old king's health was unstable.
Thai credit default swaps (CDS) rose eight basis points
(bps) to 97 bps, the highest since mid-July, Markit data showed.
But aside from domestic woes, emerging assets are being
weighed down by the dollar, which is near seven-month highs
. Weak U.S. company earnings also soured the mood,
dragging global equities lower.
"There's a conviction in the market that there will be a
(U.S. interest rate) hike in early December and that's the main
driver right now so the market could be under pressure," said
Regis Chatellier, a strategist at Societe Generale in London.
South African markets extended losses, with the rand dipping
to new two-week lows, while local bond yields rose further to
one-month highs after prosecutors ordered
Finance Minister Pravin Gordhan to appear in court on Nov. 2 to
hear fraud charges against him.
Investors fear that South Africa's investment-grade credit
rating will be lost should Gordhan, who is respected by
financial markets, be forced from office, potentially causing
big outflows from stock and bond markets.
South African dollar bond yields stayed near three-month
highs and while the Johannesburg equity index was flat,
the index of banking shares fell another one percent.
Liam Spillane, head of emerging debt at Aviva Investors,
said a favourable external backdrop in recent months had
prompted many to overlook political risk and pile into South
"We are aware there has been a growing overweight position
in South African bonds and (the events) tell us that perhaps the
market was too complacent. There could be overweight (bond)
positions in weaker hands that are forced to reconsider,"
Spillane said, adding that he trimmed holdings last week.
Turkey meanwhile posted a bigger-than-expected current
account deficit in August, though the gap narrowed from July.
The lira hovered just off 2-1/2 month lows
to the dollar.
The data highlights Turkey's reliance on external funding.
Chatellier of SocGen said attracting direct investment to plug
the deficit could prove harder in future given its recent rating
downgrade to junk.
"The deterioration of the business environment and lower
growth means that it could become more of an issue but right now
it's not an immediate threat. You get paid for the risk you're
taking," he said referring to the high yields on Turkey's local
and external government bonds.
In bond news, Saudi Arabia kicks off meetings for its debut
Eurobond which is expected to raise $10-$15 billion in three
tranches. Despite weak oil prices and Saudi's political and
economic risks, the issue should see huge demand.
The deal will also unleash a torrent of pent-up Gulf
issuance, investors reckon.
"If Saudi issues $15 billion...this could add further
pressure on the Qatari and UAE bond spreads," said Jerome
Audran, EM credit analyst at UBS Wealth Management, noting a
$7-$8 billion Kuwaiti bond was also expected.
"We expect some Saudi banks and Qatari banks to issue, which
would obviously put further pressure on corporate and sovereign
bonds in the region, especially for double or single-A rating
names because people will likely switch from these bonds to the
slightly higher yielding Saudi bonds."
For GRAPHIC on emerging market FX performance 2016, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2016, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2016, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2016, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
Emerging Markets Prices from Reuters
Equities Latest Net Chg % Chg % Chg
Emrg Mkt Indx 902.80 -2.77 -0.31 +13.68
Czech Rep 890.13 -4.44 -0.50 -6.92
Poland 1757.00 -0.04 +0.02 -5.49
Hungary 28436.31 -42.93 -0.15 +18.88
Romania 6932.68 +5.97 +0.09 -1.02
Greece 585.74 +0.44 +0.08 -7.22
Russia 1007.85 +2.37 +0.24 +33.13
South Africa 45418.55 +22.83 +0.05 -0.83
Turkey 77543.43 -100.16 -0.13 +8.11
China 3059.13 -6.12 -0.20 -13.56
India 28082.34 +21.20 +0.08 +7.52
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.02 27.00 -0.05 -0.07
Poland 4.28 4.28 +0.00 -0.50
Hungary 305.07 304.68 -0.13 +3.14
Romania 4.49 4.48 -0.23 +0.57
Serbia 122.92 122.99 +0.06 -1.18
Russia 62.57 62.65 +0.13 +16.59
Kazakhstan 330.97 330.50 -0.14 +2.88
Ukraine 25.80 25.77 -0.12 -7.16
South Africa 14.41 14.36 -0.34 +7.30
Kenya 101.20 101.20 +0.00 +0.99
Israel 3.81 3.80 -0.30 +1.93
Turkey 3.08 3.08 +0.05 -5.35
China 6.71 6.72 +0.08 -3.30
India 66.82 66.82 +0.00 -0.93
Brazil 3.20 3.19 -0.09 +23.82
Mexico 18.89 18.90 +0.07 -9.09
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 353 -1 .01 7 67.10 1
All data taken from Reuters at 09:07 GMT.
Currency percent change calculated from the daily U.S.
close at 2130 GMT.
(Additional reporting by Adela Suliman)