London - Emerging stocks hit their lowest point so far this year on Wednesday as Cyprus's financial debacle dented demand for risky assets, while the rand was steady after South Africa kept interest rates on hold.
Cyprus's parliament overwhelmingly rejected on Tuesday a European bailout that included a levy on all bank deposits, and Russia and Cyprus failed to agree on a loan deal on Wednesday, ramping up the chances of the island defaulting.
“This Cyprus thing has shaken up everything,” said Lars Christensen, chief emerging markets analyst at Danske Bank.
“For the first time in five years we had some kind of real stability in the market, and this has wrecked everything.”
Benchmark emerging equities hit their lowest since early December before trimming losses. They have fallen nearly 3 percent this year.
Emerging markets continue to get some support, however, from money-printing in the developed world, which is driving funds towards higher-yielding assets.
The Federal Reserve is expected to stick with quantitative easing when it makes its interest rate decision later on Wednesday.
“We have support from policies from Japan and the Fed, and that's curbing some of the rise in risk aversion,” Christensen said.
Chinese stocks were also buoyant, enjoying their best day in more than two months.
The crisis in Cyprus has stoked unease about emerging economies inclined to unconventional policy measures, such as Hungary.
The cost of insuring Hungary's debt against default rose to five-month highs at 347 basis points in the five-year credit default swap market, according to Markit.
Hungarian stocks recovered from 2-1/2 month lows, however, and the forint pulled off recent 14-month lows, helped by verbal intervention in the past week.
South Africa's rand was steady above recent four-year lows after the central bank left rates unchanged as expected. Weak growth has weighed on the currency, and central bank governor Gill Marcus said its depreciation was somewhat overdone. - Reuters