| LONDON, Sept 12
LONDON, Sept 12 Fears of an imminent U.S. rate
rise along with higher bond yields in developed markets hit
emerging assets on Monday, with the main equity index tumbling
2.5 percent and currencies weakening against the dollar.
U.S. and German 10-year yields were at the highest in 2-1/2
months, rising further after Friday's spike caused by
speculation the U.S. Federal Reserve could move interest rates
this month, instead of December as markets had reckoned.
With U.S. stocks falling around 2 percent on Friday,
emerging markets, like other riskier assets, felt the heat.
MSCI's benchmark emerging equity index hit one-month lows
for the biggest daily loss since immediately after the
Britain's referendum vote to leave the European Union.
The index fell 1.9 percent on Friday.
"(Boston Fed President Eric) Rosengren's comments last week
really set this (sell-off) in motion, with his more hawkish
comments... and that mood has continued now on Monday," SEB's
chief emerging markets strategist Per Hammarlund said, adding
however he saw the current moves as a "blip".
He expects other Fed speakers to quash the hawkish tone,
adding: "I think the data is a bit too weak and too unconvincing
for them to already hike in September."
Hammarlund said markets also were rattled by a rise in
Chinese overnight rates on offshore yuan to seven-month highs
. Speculation has grown of a liquidity squeeze to
control yuan depreciation via offshore markets.
"(The PBOC) is trying to make offshore yuan funding more
expensive, driving up forwards quite sharply and I suspect that
will eventually squeeze out some long-dollar yuan forwards, but
for now it is touching off a bit of a risk-off mood," he added.
While onshore-traded yuan was supported by reports of dollar
sales by state-run banks, local stocks fell around 2 percent
while Hong Kong listed H-shares slumped 3.4 percent
for their biggest one-day fall since February.
Emerging markets appear all the more vulnerable to a shift
in Fed expectations, given emerging debt and equity funds have
received bumper inflows in recent months
Bonds came under pressure, with yields on South Africa's
benchmark, one of the most liquid in emerging markets, now
almost 20 basis points higher than Thursday's close
and Russian 10-year yields up about 24 bps.
Yields on JPMorgan's GBI-EM local debt index rose around 7
basis points on Friday and dollar bond yield spreads over
Treasuries at a five-day high.
On currency markets, the South African rand and Turkish lira
weakened close to 1 percent to the dollar while
oil's 1 percent fall drove the rouble 0.6 percent lower
BNP Paribas analysts predicted any shakeout would be far
smaller than the 2013 'taper tantrum'.
"Although a September rate hike would trigger a correction
in EM, we continue to think that the eventual impact on EM
assets will be manageable, as we expect the Fed to indicate a
modest upward trajectory for interest rates," they added.
In central Europe, the Hungarian forint slipped 0.4 percent
to three week lows to the euro while the Czech crown
strengthened further in forward markets amid expectations the
currency's 27-per-euro exchange rate cap will be scrapped.
Six-month euro/crown forwards fell 7 percent but stayed off
record lows hit on Friday. The forwards are pricing
the crown well above its current 27 per euro rate
where the central bank is holding it.
"They pledged to keep it until 2017 - but they have all good
reasons to drop the floor earlier," Hammarlund said. "One is
that the economy is red hot...The second thing is they are
accumulating reserves and the longer they wait, the more of an
FX loss they are going to do on the reserves."
Croatia's kuna was flat after the conservative HDZ
looked set to win parliamentary elections. Its hard
currency bonds weakened across the curve with the 2020 dollar
issue down half a cent while its euro debt
slipped 0.2 cent.
For GRAPHIC on emerging market FX performance 2016, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2016, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2016, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2016, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
Emerging Markets Prices from Reuters
Equities Latest Net Chg % Chg % Chg
Emrg Mkt Indx 886.61 -22.71 -2.50 +11.64
Czech Rep 866.27 -13.56 -1.54 -9.42
Poland 1731.94 -22.18 -1.26 -6.84
Hungary 28101.19 -344.64 -1.21 +17.48
Romania 6916.16 -111.08 -1.58 -1.26
Greece 554.42 -12.38 -2.18 -12.19
Russia 971.44 -16.43 -1.66 +28.32
South Africa 45970.58 -764.34 -1.64 +0.38
Turkey 77053.54 -789.95 -1.01 +7.43
China 3020.94 -57.92 -1.88 -14.64
India 28347.71 -449.54 -1.56 +8.54
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.01 27.01 -0.01 -0.05
Poland 4.34 4.34 -0.06 -1.95
Hungary 310.21 309.11 -0.35 +1.43
Romania 4.45 4.44 -0.23 +1.55
Serbia 123.15 123.17 +0.02 -1.36
Russia 65.09 64.71 -0.59 +12.07
Kazakhstan 337.82 337.82 +0.00 +0.79
Ukraine 26.60 26.66 +0.21 -9.95
South Africa 14.50 14.40 -0.69 +6.60
Kenya 101.20 101.20 +0.00 +0.99
Israel 3.77 3.76 -0.24 +3.11
Turkey 2.98 2.96 -0.68 -2.15
China 6.68 6.68 -0.02 -2.80
India 66.93 66.87 -0.09 -1.09
Brazil 3.27 3.27 +0.08 +21.11
Mexico 19.05 18.91 -0.72 -9.85
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 355 1 .23 7 66.78 1
All data taken from Reuters at 09:18 GMT.
Currency percent change calculated from the daily U.S.
close at 2130 GMT.
(Additional reporting by Karin Strohecker; Editing by Toby