London - Fears of full-fledged Russia-Ukraine war reverberated across emerging markets on Monday, with the hardest hit taken by Moscow, where stocks fell 10 percent and the rouble's plunge to record lows led to a surprise interest rate hike.
Ukrainian assets also fell with the two dollar bonds maturing in 2014 falling by 6-13 points on fears the near-bankrupt country would not be able to receive external assistance in time to avoid default.
Tensions over Russia's moves in Crimea and Ukraine's characterisation of it as a “declaration of war” rippled across emerging markets, with MSCI's main equity benchmark falling 1.4 percent and weakening most Asian currencies.
The impact was most brutal in Russia, where markets sold off across the board, with the main stock index posting its biggest one-day loss since September 2011 and Ukraine-exposed shares such as Gazprom, VTB and Sberbank losing 10-12 percent on the day.
The rouble slumped 2.5 percent slump at the start of trade, and the central bank hiked interest rates by 150 basis points to 7 percent, citing risks to financial stability.
“We are facing a security crisis,” said Benoit Anne, head of emerging equity strategy at Societe Generale.
Central Europe was taking a hit, with the Polish zloty and the Hungarian forint down around 1 percent to the euro.
The Turkish lira fell half a percent to the dollar.
“You have to watch out for zloty because it is a proxy hedge for the region and geographically, it's next door,” SocGen's Anne said.
Earlier in Asia, China's yuan stabilised against the dollar after posting the biggest fall last week in 20 years.
Unicredit said the Russian rate hike was a strong negative for the economy for which consumption is the primary driver at present and said it was unlikely to stem rouble depreciation.
The currency is down 10 percent year-to-date.
“Our growth forecast of 2 percent for Russia this year is too optimistic. Inflation is also likely to remain above target, bringing into question whether this rate hike will ultimately prove temporary.”
In Ukraine, the sovereign bond due June 2014 fell as much as 6 points, according to Tradeweb, while state energy firm Naftogaz's dollar bond, due in Sept 2014 fell 13 points.
The hryvnia fell to a new record low of 11.65 per dollar on the Reuters dealing platform. - Reuters