Oct 23 (Reuters) - Emerging-market stocks and currencies took a beating on Tuesday as concerns over Italy’s budget, Brexit talks and Saudi Arabia’s handling of Jamal Khashoggi’s killing kept investors’ appetite for risk in the doldrums.
A weak lead from Wall Street overnight filtered through to stock markets, with Chinese shares falling after two strong days and South Korea’s Kospi dropping 3 percent to its lowest in more than a year and a half.
Poland’s Wig-20 fell to its lowest in nearly 2 weeks as initial indications from Sunday’s election showed the populist Law and Justice government had racked up strong nationwide support but lost mayoral elections in major cities.
The MSCI emerging market stock index was down 1.8 percent, on-pace to post its worst session in nearly two weeks.
“This is more of a carry forward from Asia session for now,” said Cristian Maggio, head of emerging market strategy at TD Securities in London, pointing to Italy as a continuing source of risk in Europe.
“For as long as this negotiation/clash remains (between the EU and Italy), it will provide some additional risk-off sentiment in the market and I don’t think it will be over today. It will go on for weeks to come.”
A speech by Turkish President Tayyip Erdogan later in the day is expected to give more details on the investigation into the killing of journalist Khashoggi at the Saudi consulate in Istanbul.
Saudi Arabia, a top crude oil exporter, faces international pressure to provide all the facts about an incident that has raised a global storm and added the threat of sanctions against the kingdom to a list of market concerns.
Investors worry that may lead to retaliation through crude oil, although a Saudi pledge to keep markets supplied held down crude prices on Tuesday.
Turkey’s lira fell as much as 2 percent against the dollar before the speech. The stock index lost close to 1 percent.
Consumer confidence in Turkey slid to its lowest level in nearly 10 years in October, heightening investor concern ahead of a central bank meeting on Wednesday that is the first since it raised rates by 6.25 percentage points in September.
“The market is positioned for a hold (on interest rates) but with a slight upside bias, which means the central bank can get away with not hiking rates only if they provide a very hawkish statement,” Maggio said.
Most other developing-market currencies also weakened against a steady dollar, with the South African rand and Russian rouble slipping after two days of gains.
Emerging European currencies declined against the dollar as well as the euro, with the Polish zloty leading losses. For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2OusNdX
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