Rout continues as Fed tapers

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Richard Frost and Emma O’Brien Hong Kong and Wellington

Emerging stocks yesterday extended the worst start to a year since 2008 and Turkey’s lira and South Korea’s won declined as China’s manufacturing shrank and the US Federal Reserve cut more stimulus. Industrial metals dropped.

The MSCI emerging markets index was down 0.5 percent by 11.20am in London, retreating 7 percent so far this year. The Stoxx Europe 600 index had lost 0.4 percent, while Standard & Poor’s 500 index futures were 0.3 percent higher after a two-month low. Facebook jumped 13 percent in pre-market trading after sales beat analysts’ estimates.

The lira slid for a second day and the won dropped the most in three weeks. Aluminium fell to a four-year low, and zinc extended its longest losing streak since October 2012.

On Wednesday Fed policymakers reduced the pace of bond buying for a second time. Investors pulled money at a record pace out of exchange-traded funds (ETFs) that track emerging markets. Chinese manufacturing contracted for the first time in six months this month, according to a private survey, before a government report that was expected to show the US economy in the fourth quarter of last year completed its strongest six months of growth in almost two years.

“Given the likelihood of continued Fed tapering in the period ahead, there appears little doubt that long emerging market positions are likely to be subjected to near-term pressure,” Matthew Sherwood, the head of investment research at Perpetual in Sydney, said.

The Federal Open Market Committee said on Wednesday that it would trim monthly asset purchases by $10 billion (R111bn) to $65bn, citing labour market indicators that “were mixed but on balance showed further improvement”. It was the first meeting without a dissent since June 2011.

The MSCI gauge of emerging markets snapped a two-day advance. More than $7bn has flowed from ETFs investing in developing nation assets this month, the most since the securities were created, data show.

The Hang Seng China enterprises index of mainland companies listed in Hong Kong lost 0.8 percent, taking this year’s fall to 9.2 percent. The Shanghai composite index decreased 0.7 percent yesterday. Markets will be closed in the mainland from today through February 6 for the Lunar New Year holiday, while trading in Hong Kong will resume on Tuesday. South Korean and Taiwanese markets were closed yesterday.

A Chinese purchasing managers’ index fell to 49.5 from 50.5 last month, HSBC and Markit Economics said. The reading compared with the median 49.6 estimate in a survey of 14 economists. A number below 50 indicates contraction.

Benchmark equity gauges in India, Turkey and Poland dropped at least 1 percent.

Turkey’s lira slid 1 percent against the dollar, falling for a second day after the Turkish central bank nearly doubled its key interest rate. The South Korean won lost 1 percent.

Hungary’s forint weakened 0.6 percent against the euro after central bank president Gyorgy Matolcsy, whose policymakers cut the benchmark rate in 18 consecutive steps to a record low 2.85 percent by this month, said “subdued” inflation provided room for further easing.

The yield on Ukraine’s June 2014 dollar bond rose 88 basis points to 12.85 percent. The cost to insure government debt with credit default swaps jumped 46 basis points to 1 000, the highest since December 16, a day before Russia agreed to a $15bn loan, CMA data show. Russia increased pressure on Ukraine, threatening to withhold aid until it forms a new cabinet, as President Viktor Yanukovych refused to pardon protesters unconditionally.

Two shares fell for every one that advanced in Europe’s Stoxx 600, which has lost 0.5 percent this month. A gauge of food and beverage companies led the declines.

The S&P 500 has lost 4 percent this year, its worst start since 2009. – Bloomberg


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