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EMERGING MARKETS-China reserves, mounting political risk weigh on emerging markets
February 7, 2017 / 10:16 AM / in 8 months

EMERGING MARKETS-China reserves, mounting political risk weigh on emerging markets

LONDON, Feb 7 (Reuters) - Emerging markets took a beating on Tuesday as a surge in political risks in Europe and a fall in Chinese reserves below $3 trillion boosted the dollar, with MSCI’s equity index snapping a four-day winning streak.

Most emerging currencies fell against the resurgent dollar, especially after data showed Chinese reserves at $2.998 billion, the lowest since Feb 2011, underscoring the country’s capital outflows problem.

The Chinese yuan slipped against the dollar on the spot market to two-week lows while the gap against the offshore yuan widened to around 600 pips at one point, with local bank traders reporting “huge and concentrated” dollar demand from individuals.

The yuan also weakened against the dollar in the non-deliverable forwards market to 6.9865, the lowest since November.

“With $3 trillion viewed by some as an important threshold, this decline will likely spark renewed debate over how long the People’s Bank (PBOC) can continue intervening to support the renminbi,” Julian Evans-Pritchard at Capital Economics wrote in a note to clients.

France’s election campaign added to fears of political risk, with far-right National Front Leader Marine Le Pen pledging to fight globalisation and take France out of the European Union. This spurned investors to shift money from equities to government bonds, pushing MSCI’s emerging equity index down 0.3 percent off seven-month highs.

In Russia, the rouble weakened half a percent as authorities started planned daily purchases of up to $100 million to replenish reserves while the rand fell more than 1 percent, hit by dollar strength as well as fears of a slowing China which would hit metals prices.

The rand will weaken more than 7 percent this year against the dollar, more than most emerging currencies, according to Reuters polls, which also forecast the Brazilian real and Mexican peso to slump around 6 percent

The lira meanwhile slipped 0.7 percent off a one-month high and Turkish shares lost half a percent off two-year highs, dragged down by a 3 percent loss in white goods maker Arcelik which fell 6 percent after 2016 results showed a narrowing of EBITDA margins.

In Nigeria, five-year credit default swaps traded at 614 basis points, according to Markit data, the highest level since end-September 2016 after hundreds of Nigerians marched through the streets of Lagos calling for a change of government on Monday in a rare show of public dissent.

The protests reflected mounting anger over an absentee leader, with President Muhammadu Buhari having been in Britain for unspecified medical treatment, and a sputtering economy as the country has been mired in its first recession in 25 years.

For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5

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

on year

Morgan Stanley Emrg Mkt Indx 918.83 -4.16 -0.45 +6.56

Czech Rep 946.23 +4.17 +0.44 +2.67

Poland 2082.11 -7.50 -0.36 +6.89

Hungary 32529.78 +140.87 +0.43 +1.65

Romania 7555.47 -31.08 -0.41 +6.64

Greece 627.93 +7.18 +1.16 -2.44

Russia 1171.10 -7.42 -0.63 +1.63

South Africa 45163.87 -190.08 -0.42 +2.87

Turkey 87168.16 -189.70 -0.22 +11.56

China 3153.65 -3.33 -0.11 +1.61

India 28332.64 -106.64 -0.37 +6.41

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 27.02 27.01 -0.03 -0.04

Poland 4.29 4.29 +0.04 +2.60

Hungary 309.64 309.59 -0.02 -0.26

Romania 4.49 4.50 +0.20 +0.98

Serbia 123.69 123.76 +0.06 -0.27

Russia 59.40 58.91 -0.82 +3.14

Kazakhstan 323.40 322.16 -0.38 +3.17

Ukraine 26.98 27.10 +0.44 +0.07

South Africa 13.44 13.28 -1.16 +2.17

Kenya 103.60 103.70 +0.10 -1.19

Israel 3.75 3.74 -0.43 +2.57

Turkey 3.72 3.68 -0.91 -5.11

China 6.88 6.86 -0.33 +0.87

India 67.44 67.17 -0.39 +0.76

Brazil 3.12 3.12 +0.02 +4.44

Mexico 20.73 20.56 -0.83 -0.06

Debt Index Strip Spd Chg %Rtn Index

Sov‘gn Debt EMBIG 340 0 .01 7 57.07 1

All data taken from Reuters at 10:05 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Additional reporting by Claire Milhench; Editing by Keith Weir)

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