London - Emerging stocks headed lower on Thursday as encouraging news on Chinese manufacturing failed to dent fears over a tightening of monetary policy in the world's second biggest economy.
The MSCI emerging markets index was off 0.24 percent, extending the previous day's losses as a month-long rally comes to a halt.
Flash PMI numbers from China offered solace to investors stung by soft exports data earlier this month but, given the broader policy backdrop, they failed to spark much optimism.
Analysts at SEB said in a note that markets were “digesting on the one hand positive news from the Chinese HSBC flash PMI and on the other tightened liquidity in China with short money market rates bouncing the most since July.”
China's central bank has allowed cash to drain from the financial system for a second straight week, sparking the jump in short-term rates.
The Shanghai Composite Index was down 0.86 percent and the cost of insuring Chinese debt rose to 85 basis points from 81 on Wednesday, according to data from Markit, back to levels last seen two weeks ago.
Analysts in Societe Generale's cross-asset team punctured the gloom a little by rubber-stamping their bullish stance on emerging markets.
“Soft US data... has reaffirmed our view that this is not going to be a short-lived rally in GEM (global emerging markets),” they said.
South African stocks saw another drop after Wednesday's steep fall and the rand was up a touch on a budget policy statement which gave with one hand and took away with the other - signalling slower growth than expected but an improved fiscal position.
Absa Capital economists said in a note: “We think the modestly increased funding pressure could cause the yield curve to steepen, all other things being equal.”
ING analysts reckoned there remained a “slight risk” of an above-target budget deficit for 2013 and 2014
The Czech crown rebounded from a multi-week low, helped by improved consumer confidence data, while central European stock markets mostly recovered some losses to extend an October rally. - Reuters