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Stocks in most developing markets dropped to more than a one-month low yesterday, as risk taking took a dive after a surprise interest rate decision out of China, while Ukraine bond yields ticked up following a credit rating downgrade.
MSCI’s index tracking equities across emerging markets dropped 0,6 percent on track for its ninth day of declines out of ten, but still hanging onto gains of over 4 percent year-to-date.
A currencies gauge edged up 0,2 percent against a softer dollar, with markets awaiting economic growth data out of the US later in the day.
The People’s bank of China (PBOC) surprised markets for a second time this week with an unscheduled lending operation at steeply lower rates, in a heavier effort to prop the economy, which spooked investors and sent China stocks lower by 0,5 percent each.
China’s offshore yuan, however, firmed to levels seen last in early May, while bond yields across the curve were flat.
“The PBOC is trying to shore-up sluggish Chinese economic activity. However, until China deals with its huge debt overhang (total debt is more than 300 percent of GDP), the country looks set for weaker growth in the years ahead,” said Elias Haddad, senior markets strategist at Brown Brothers Harriman.
Indian equities continued their decline for the fifth straight day, with the indexes on track for their first weekly losses since late May after equity trading tax hikes earlier in the week.
The capital gains tax revisions sparked a selloff with data showing foreign investors offloaded nearly US$1 billion worth of equities in the two days since the budget announcement.
South Africa’s rand depreciated 0,8 percent, tracking a weakness in precious metal prices, a top export item from the country.
In central and eastern Europe, Hungary’s forint weakened for the third-straight day by 0,1 percent to a two-week low on expectations of more monetary policy easing after an interest rate cut earlier in the week.
Concerns also remain as the country struggles with the largest debt in the region.
An index tracking stocks in central and eastern Europe also slid 1,5 percent to a more than one month low.
Investors monitored ceasefire negotiations between Israel and Hamas, which US officials said were appearing to be in their closing stages. The shekel was flat.– Reuters
Elsewhere, Ukraine’s central bank was due to announce an interest rate decision.
Yields on dollar bonds ticked up 28 basis points (bps) as ratings agency Fitch downgraded the war-torn country’s credit rating further into default territory, citing a recently concluded in-principle agreement with a group of creditors to restructure US$20 billion of international bonds. Reuters
Peter Tanyanyiwa
Online Reporter