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EMERGING MARKETS-Oil sell-off pushes EM stocks to fresh 6-1/2 yr lows
January 18, 2016 / 10:40 AM / 2 years ago

EMERGING MARKETS-Oil sell-off pushes EM stocks to fresh 6-1/2 yr lows

LONDON, Jan 18 (Reuters) - Emerging market stocks slipped to fresh six-and-a-half year lows on Monday, with commodity producers feeling the heat after the lifting of international sanctions against Iran sent oil prices to their lowest level since 2003.

The benchmark emerging equity index lost 0.6 percent, with Russian and Saudi stocks leading the fallers, down around one percent as oil producers braced for more barrels to hit the market from Iran.

The rouble weakened 1.1 percent against the dollar, while the Kazakh tenge lost 4.4 percent to hit a new all-time low.

At the weekend Russia’s finance minister Anton Siluanov said the fall in oil prices meant the Russian budget would be short of more than 3 trillion roubles ($38.6 billion) of income. Nigeria’s President Muhammadu Buhari also requested the withdrawal of the 2016 budget in order to make changes.

Oil prices dipped to $27.67 a barrel early on Monday after Iran said it was ready to increase exports by 500,000 barrels per day, adding to the existing glut.

William Jackson, senior emerging markets economist at Capital Economics, said an easing of sanctions had been expected for some time and the extra Iranian oil was small in terms of total global supply.

“But it could be that the sharp falls in the oil price, combined with concerns about a weaker China and (concerns) that the U.S. economy is slowing, may have led to a general deterioration in investor sentiment for a lot of emerging markets,” he added.

Friday’s weak U.S. retail sales data, which pointed to sharply slower growth, sent jitters through Asian markets.

Hong Kong was down 1.45 percent and Singapore’s key index touched its lowest level since October 2011 following weaker-than-expected exports in December.

Mainland Chinese shares bucked the trend, closing up around 0.4 percent , helped by gains in property stocks after data showed China’s home prices continued to rise in December.

The Polish zloty plunged to a four-year low against the euro following a surprise downgrade by Standard & Poor’s (S&P) on Friday to BBB+ with a negative outlook from A.

“The scale of the downgrade was larger than some people had anticipated, and that has taken a toll on the zloty,” Jackson said. Poland’s blue chip index also sold off, down 1.4 percent.

S&P said the new government had weakened the independence of key institutions and warned that the rating could fall further.

The yield on Poland’s 10-year treasury bond rose 28 basis points to 3.25 percent while the 2025 euro-denominated eurobond fell 2.3 cents to its lowest since June 2015.

“We expect a major sell-off as the local debt market has priced in a very limited risk premium so far,” Rafal Benecki, an analyst at ING Bank, said in a note.

China stepped up efforts to stabilise the yuan, with the central bank saying it would implement a reserve requirement ratio for some banks involved in the offshore renminbi market, effective from Jan. 25.

The yuan was slightly firmer against the dollar, helping other Asian currencies such as the Korean won and the Thai baht to rebound.

The South African rand and Turkish lira also firmed slightly. South Africa’s MTN rallied over 2 percent, as the removal of sanctions against Iran will free up more than $1 billion in frozen accumulated dividends for the mobile phone company.

For GRAPHIC on emerging market FX performance 2016, see

For GRAPHIC on MSCI emerging index performance 2016, see

For GRAPHIC on MSCI emerging Europe performance 2016, see

For GRAPHIC on MSCI frontier index performance 2016, see

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Editing by Gareth Jones)

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