August 23, 2018 / 8:51 AM / 3 months ago

EMERGING MARKETS-South African rand falls more than 1 percent after Trump tweet

LONDON, Aug 23 (Reuters) - South Africa's rand led emerging market currency losses on Thursday, down more than 1 percent after U.S. President Donald Trump tweeted his concerns on land reform, while the rising risk of further U.S. sanctions on Russia knocked the rouble.

Emerging currencies were on the backfoot anyway as the dollar index rebounded 0.3 percent in the wake of minutes from the U.S. Federal Reserve's last meeting indicating it would raise rates in September.

The rand took the brunt of the selling, down 1.4 percent, after Trump tweeted late on Wednesday that he would ask his Secretary of State Mike Pompeo to look closely at changes to land reform proposed by the ruling African National Congress (ANC) party.

The ANC is forging ahead with plans to change South Africa's constitution to allow the expropriation of land without compensation, and Trump's comments have inflamed the debate.

South Africa sovereign dollar bonds fell across the curve while five-year credit default swaps rose 8 basis points (bps) from Wednesday's close to 215 bps according to IHS Markit data.

"The market has become a little too obsessed with tweets," said Cristian Maggio, head of emerging markets strategy at TD Securities.

"I am concerned about land reform but I don't see why markets should be more concerned if Trump is asking Pompeo to check what's happening - it's a purely domestic sovereign matter for South Africa."

Russia's rouble was the other big faller, down 1.1 percent after its weakest close since 2016, and heading towards its lowest in more than two years as traders priced in a growing risk of more U.S. sanctions.

"It's a concern and keeping the rouble weak, and it is likely to be the case until the U.S. midterm elections as the fiery rhetoric has been stepped up," said Maggio.

"The risk is we are getting into a completely new area in terms of the extent and reach of the sanctions as so far they have been aimed at individuals and specific firms and not at hitting government debt directly."

Russian stocks also remained under pressure, with dollar-denominated shares down 1.2 percent.

Russia's economy minister acknowledged that new U.S. sanctions would pressure the rouble and fuel capital outflows over the next 12 months, recognising the need to trim the economic growth forecast.

In a sign of the widespread fear among banks of reprisals from Washington for working with targeted Russian individuals and entities, Credit Suisse froze roughly $5 billion of assets linked to Russia.

The Turkish lira also fell another 0.8 percent after Ankara accused Washington of waging "economic war" and failing to respect its legal system over the fate of an American pastor whose trial in Turkey has soured relations between the NATO allies.

Trump's national security adviser John Bolton said Turkey had made a "big mistake" in not freeing pastor Andrew Brunson.

Emerging equities also struggled as more tit-for-tat tariffs were imposed in the ongoing trade dispute between the United States and China, even as officials from both sides met to try to resolve the damaging conflict.

MSCI's benchmark emerging stocks index was effectively flat on the day, with ratings agency Moody's warning that the trade war was a risk to global growth.

"Emerging market countries remain inherently vulnerable to the risk of capital outflows associated with tightening global liquidity as advanced economy central banks reverse their quantitative easing measures," Moody's added.

Chinese mainland shares gained 0.3 percent but Hong Kong fell 0.5 percent and emerging Europe bourses delivered meagre gains with Poland and Hungary stocks up 0.3-0.4 percent.

For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5

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For CENTRAL EUROPE market report, see

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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1051.59 +0.98 +0.09 -9.22

Czech Rep 1076.37 +3.37 +0.31 -0.17

Poland 2302.37 +6.74 +0.29 -6.45

Hungary 36531.69 +165.79 +0.46 -7.23

Romania 8179.62 -9.90 -0.12 +5.49

Greece 723.52 +4.06 +0.56 -9.83

Russia 1051.54 -13.80 -1.30 -8.91

South Africa 52102.79 +41.18 +0.08 -0.82

Turkey 90185.99 +1451.23 +1.64 -21.80

China 2724.63 +10.02 +0.37 -17.61

India 38312.90 +27.15 +0.07 +12.50

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2018

Czech Rep 25.74 25.72 -0.09 -0.83

Poland 4.29 4.27 -0.49 -2.67

Hungary 324.38 322.68 -0.52 -4.27

Romania 4.64 4.64 +0.01 +0.70

Serbia 117.98 117.96 -0.02 +0.36

Russia 68.92 68.03 -1.29 -16.34

Kazakhstan 362.47 361.57 -0.25 -8.19

Ukraine 27.85 27.84 -0.04 +1.06

South Africa 14.36 14.16 -1.40 -13.95

Kenya 100.55 100.62 +0.07 +2.54

Israel 3.64 3.63 -0.36 -4.50

Turkey 6.07 6.03 -0.62 -37.55

China 6.87 6.84 -0.47 -5.32

India 70.11 69.86 -0.36 -8.96

Brazil 4.04 4.04 +0.03 -18.02

Mexico 18.77 18.73 -0.21 +4.70

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 386 1 .03 7 73.29 1

Reporting by Claire Milhench Editing by Gareth Jones

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