LONDON Feb 8 Dollar strength and European
political risks kept emerging markets under pressure on
Wednesday, with equities slipping for a second straight day and
China's yuan touching a three-week low.
Investors have fled in recent days to safety of dollar and
yen, spooked by France's presidential election campaign where
far-right National Front Leader Marine Le Pen has pledged to
take France out of the European Union.
With the dollar index firming 0.3 percent, emerging
currencies struggled to make headway, whilst MSCI's emerging
stocks index slipped to five-day lows.
While shares in Shanghai and Hong Kong climbed
around 0.5 percent, European markets weakened, led by Russia
and South Africa with losses of around 0.6
percent as commodity prices slipped.
Manik Narain, an emerging FX strategist at UBS said that
after a strong emerging markets rally, risks both within the
sector and globally looked underpriced.
"Europe has definitely been a dynamic that's gaining
traction - you've seen some widening of peripheral spreads
reflecting political worries ... and that could fester for a
while," Narain said.
Some of those fears relate to China, where the yuan touched
a three-week low of 6.8916, before recovering to end
slightly firmer. It remains under pressure from the dollar as
well as showing China's foreign exchange reserves had fallen
below the closely-watched $3 trillion level in January for the
first time in nearly six years.
VTB Capital analysts noted the yuan had been relatively firm
this year and predicted interest rates would move up in coming
months after last week's surprise 10 bps rate rise.
"The authorities are also conscious of bubble risks in the
financial markets and it might be that they are willing to trade
off some reduction in economic growth for this year in return
for greater financial stability," VTB added.
Investors are also watching South Africa where the
slipped 0.25 percent against the dollar before President Jacob
Zuma's state-of-the union address on Thursday amid speculation
of an imminent cabinet reshuffle.
Zuma has downplayed the reports
Citi analysts said they had recently cut their long rand
positions despite fundamental economic improvements, including a
shrinking trade deficit.
"We still think the rand has fundamental backing and that
periods without political noise could see the unit grind
stronger," Citi said. They however that the state-of-the nation
speech seemed like "a potential platform for President Zuma to
stamp his authority".
Johannesburg stocks fell 0.5 percent, dragged down
by a 4 percent slump in mobile phone operator MTN which
expects to post full-year losses after a $1 billion fine in
The Turkish lira also slipped after weakening 1.6
percent on Tuesday. Industrial output grew 1.3 percent
year-on-year in December, underscoring the weak state of the
India's rupee was slightly weaker and shares
extended losses, down 0.4 percent, after the central bank kept
rates on hold at 6.25 percent.
The Polish zloty weakened 0.2 percent against the
euro before a central bank meeting which should keep rates at a
record low of 1.5 percent.
Romania's leu touched new four-month highs
against the euro, after hitting seven-months low last week amid
mass anti-government protests. The central bank left its
benchmark interest rate on hold at a record low of 1.75 percent
For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml
For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5
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 918.99 -0.81 -0.09 +6.58
Czech Rep 954.02 +6.77 +0.71 +3.52
Poland 2081.43 -5.11 -0.24 +6.85
Hungary 32580.44 +40.91 +0.13 +1.80
Romania 7624.46 -4.67 -0.06 +7.61
Greece 613.88 -9.49 -1.52 -4.62
Russia 1169.46 -9.75 -0.83 +1.49
South Africa 45135.49 -231.39 -0.51 +2.81
Turkey 87581.86 +105.13 +0.12 +12.09
China 3167.45 +14.36 +0.46 +2.06
India 28236.00 -99.16 -0.35 +6.04
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.02 27.00 -0.06 -0.04
Poland 4.31 4.30 -0.18 +2.15
Hungary 309.22 308.91 -0.10 -0.13
Romania 4.49 4.49 -0.06 +1.05
Serbia 123.69 123.80 +0.09 -0.27
Russia 59.51 59.42 -0.15 +2.95
Kazakhstan 324.95 323.58 -0.42 +2.68
Ukraine 26.91 26.98 +0.26 +0.33
South Africa 13.47 13.45 -0.16 +1.92
Kenya 103.70 103.60 -0.10 -1.28
Israel 3.76 3.75 -0.23 +2.50
Turkey 3.75 3.74 -0.07 -5.87
China 6.87 6.88 +0.13 +1.01
India 67.33 67.33 -0.00 +0.91
Brazil 3.12 3.12 +0.00 +4.27
Mexico 20.61 20.62 +0.05 +0.52
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 345 1 .00 7 56.17 1
(Additional reporting by Sujata Rao; Editing by Tom Heneghan)