LONDON, April 26 (Reuters) - Emerging equities found a foothold on Thursday, taking their cue from developed markets, but remained near 10-week lows as higher U.S. Treasury yields and a strong dollar curbed investor appetite for riskier assets.
MSCI’s benchmark emerging stocks index has been on the backfoot all week, with U.S. 10-year Treasury yields breaking through 3 percent to hit their highest since January 2014 and wobbles in tech stocks.
The move higher in Treasuries has also pushed the dollar to 3-1/2-month highs creating headwinds for higher-yielding emerging currencies.
Total outflows from emerging market portfolios since mid-April are seen at some $5.6 billion, equally split between debt and equity, according to the latest Institute of International Finance data.
But the sell off was arrested on Thursday, with emerging stocks trading sideways after Wall Street ended higher on a spate of upbeat earnings.
The average yield spread of emerging market sovereign dollar bonds over U.S. Treasuries on the JPMorgan EMBI Global index also narrowed by 1 basis point to 300 basis points, after blowing out to its widest since early April.
“The market has hit the pause button after a few torrid days,” said Per Hammarlund, chief emerging markets strategist at SEB.
“U.S. yields have moved pretty quickly over the past week or so and that has definitely had an effect on EM risk appetite. If it stalls now around 3 percent, then risk appetite will come back, but when it moves that quickly it’s bound to have an effect.”
Emerging European markets such as Poland and Russia opened stronger after a weak performance in Asia, with some hefty falls on Chinese and Indonesian bourses.
Chinese mainland shares tumbled almost 2 percent and Hong Kong fell 1 percent as a U.S. probe into Chinese tech company Huawei over potential sanctions violations rattled tech stocks and increased jitters over U.S.-China trade relations.
Indonesian shares racked up a fifth day of losses, down 2.7 percent to October lows as investors continued to unwind dollar-denominated carry trades, with the rupiah hitting its lowest level since January 2016.
Southeast Asia’s largest economy is vulnerable to sudden capital flight from its sovereign bond market due to high foreign ownership, which could weaken the rupiah further.
South Korea outperformed its regional peers, gaining 1.1 percent after Samsung Electronics posted a record quarterly profit. Its shares gained 3.5 percent, while those of SK Hynix rose nearly 5 percent.
Positive growth data underpinned, with South Korean first quarter GDP growth of 1.1 percent, helped by booming exports.
Currencies delivered a mixed performance, with Russia’s rouble the biggest faller, down 0.7 percent ahead of Friday’s central bank meeting. The bank is expected to pause in its easing cycle after the rouble took a pounding in the wake of U.S. sanctions.
Russia’s central bank also said it would bail out Asian-Pacific Bank and revoke the licences of two other banks as it continues with a clean-up programme in the sector.
Turkey’s lira struggled for direction after Wednesday’s modest gains when the central bank raised its top interest rate by a bigger-than-expected 75 basis points.
Hammarlund said he expected the lira to remain under pressure unless the government stopped stimulating the economy to generate excessive domestic demand.
“If inflation stays high and the current account deficit stays wide, investors will demand a higher return for investing in Turkey. They would have needed to do something a bit bigger to really strengthen the lira,” he said.
The South African rand bucked the trend, firming 0.2 percent off a three-month low.
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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1140.94 +0.67 +0.06 -1.51
Czech Rep 1124.82 +3.15 +0.28 +4.33
Poland 2267.90 +10.90 +0.48 -7.85
Hungary 38089.83 +39.86 +0.10 -3.27
Romania 9047.58 +41.48 +0.46 +16.69
Greece 830.24 +4.31 +0.52 +3.47
Russia 1138.41 +0.79 +0.07 -1.39
South Africa 50367.07 +132.22 +0.26 -4.12
Turkey 06801.71 -599.67 -0.56 -7.40
China 3075.85 -42.12 -1.35 -6.99
India 34581.14 +79.87 +0.23 +1.54
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.44 25.45 +0.05 +0.35
Poland 4.23 4.23 -0.15 -1.35
Hungary 313.18 312.98 -0.06 -0.85
Romania 4.65 4.64 -0.15 +0.56
Serbia 117.96 118.06 +0.08 +0.37
Russia 62.81 62.41 -0.64 -8.20
Kazakhstan 328.25 326.06 -0.67 +1.39
Ukraine 26.23 26.25 +0.08 +7.30
South Africa 12.39 12.43 +0.31 -0.30
Kenya 100.20 100.00 -0.20 +2.89
Israel 3.58 3.59 +0.12 -2.90
Turkey 4.07 4.08 +0.12 -6.95
China 6.33 6.32 -0.06 +2.83
India 66.75 66.91 +0.24 -4.38
Brazil 3.48 3.48 +0.01 -4.94
Mexico 18.86 18.85 -0.07 +4.18
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 322 -1 .11 7 83.20 1
Reporting by Claire Milhench; graphic by Karin Strohecker; Editing by Janet Lawrence