Tuesday 23 December 2014
 
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PROTRACTED CAPITAL FLIGHT FEAR

Emerging market funds lose $9bn in past week

London, February 1, 2014

Investors resumed their flight from emerging markets yesterday as the latest round of central bank actions proved insufficient to offset concern about rising economic and political risks in many developing countries.

They pulled out $9 billion from emerging stock and bond funds during a turbulent past week, with equities seeing their biggest outflow in 2-1/2 years, banks said yesterday citing data from Boston-based fund tracker EPFR Global.

Currencies and bonds fell in developing nations, from Asia to Europe to Latin America, with the Russian rouble sliding one per cent to five-year lows. Wall Street ended lower.

Emerging market stocks and currencies extended their slide on fears of a protracted capital flight, while a gauge of global equities fell, on track to close its worst month in almost two years.

European stocks markets fell, cutting initial losses sharply, but could not prevent MSCI's global index from heading to its largest monthly decline since May 2012.

Emerging market stocks were down 6.8 per cent for the last month, the worst start to a year since 2008.

Government borrowing costs jumped across weaker economies despite local policymakers' efforts to stanch the bleeding.

Concern about growth in China and other emerging markets triggered the selling in developing economies late last week, with focus on countries with internal political and economic issues, like Ukraine and Argentina.

The turmoil also appeared to engulf central European countries such as Poland and Hungary, which fared relatively well in the first sell-off phase earlier this month.

Analysts said tighter global liquidity resulting from the US Federal Reserve's decision to cut back on stimulus only exacerbates emerging markets' own problems, which include unsustainable current account deficits, rising political risks and a possible economic slowdown in China.

Year-to-date outflows from emerging stocks already amount to $12.2bn, close to the $15bn that fled during the whole of last year, the EPFR data showed. Index-tracking exchange traded funds accounted for two-thirds of the exodus.

In a sign that the turmoil was reverberating in central Europe, Poland delayed publication of its monthly debt supply plan until next week due to market turbulence and an overhaul of its pension scheme.

On Thursday, Hungary was forced to cut a T-bill auction because of a 67 basis-point jump in yields.

Hungary's central bank was the latest to wade in with assurances that it would act to soothe markets if needed, adding to verbal intervention from India and Russia, as well as big rate rises in Turkey and South Africa.

The Hungarian forint fell 1.5 per cent to the euro, hitting two-year lows, while bond yields jumped 20 basis points across the curve. In neighbouring Poland, 10-year bond yields rose 10 basis points to a four-and-a-half-month high after the government delayed its debt supply plan and the zloty lost 1 per cent.

The spotlight remained on the rouble. A rally that started late on Thursday proved short-lived, taking the Russian currency down more than 1 per cent.

In Latin America, the Chilean peso slid more than 1 per cent while the Brazilian real and the Mexican peso posted more modest losses of 0.5 and 0.3 per cent, respectively.-Reuters




Tags: equity | emerging markets | capital flight |

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