January 9, 2018 / 10:11 AM / 9 days ago

EMERGING MARKETS-Angola's kwanza braces for devaluation amid weaker emerging markets

LONDON, Jan 9 (Reuters) - Angola’s kwanza currency was marked lower on Tuesday ahead of an expected devaluation, while broader emerging assets also weakened, with stocks slipping off 6-1/2-year highs.

MSCI’s benchmark emerging equities index kicked off 2018 by extending last year’s strong performance, underpinned by encouraging growth data in both emerging and developed markets and strong fund inflows.

But the index snapped a five-day run of gains, falling 0.2 percent after a decline in South Korea where shares in Samsung Electronics fell more than 3 percent on disappointing earnings guidance.

South Africa’s stricken retailer Steinhoff saw shares tumble another 9 percent after the European Central Bank apparently sold the dual-listed firm’s bonds.

Turkish shares lost around half a percent, led down by banks which reacted negatively to belligerent comments by President Tayyip Erdogan describing the U.S. trial of a Turkish banker as “a political coup attempt” .

With most emerging currencies weaker against a stronger dollar, Angola was set to become the latest country to ditch its dollar peg. The kwanza was marked 0.8 percent lower before a forex auction due to be held under new rules.

The currency is pegged at around 165 per dollar but trades on the black market at around 400. Authorities are expected to allow the kwanza to float in a target band.

Regis Chatellier, a strategist at Societe Generale, said the reform would be positive for Angola but was sceptical on how free floating the kwanza would actually be.

“With these countries, there are always a lot of good intentions. We saw that with Nigeria for example, the currency was floating or at least it was supposed to be that way, but the bottom line was it was not floating as much as people wanted. We could have a similar issue here,” he said.

Johannesburg-based brokerage NKC suggested the currency could overshoot to the downside if markets perceive the new rates as still overvalued.

“To maintain credibility ...(the central bank) would then need to inject foreign exchange into the system. However, (authorities’) ability to defend the unit is constrained by the low level of foreign reserves,” NKC wrote.

Another currency in focus was Romania’s leu which slipped to one-week lows against the euro, after interest rates rose on Monday for the first time in a decade. The central bank also signalled comfort with greater currency swings.

Inflation is now above-forecast and data showed a sharply wider trade balance.

JPMorgan told clients Romania’s rate rise had come too late and would likely be followed up by another 125 bps hike this year. It suggested an underweight position in the leu and local bonds.

“Imbalances should set leu on a depreciation path in contrast to other central banks, where the cyclical upswing should lead to currency gains,” the bank said. “We continue to see (government bonds) as offering too little risk premium compared to the inflation outlook and fiscal challenges.”

Kazakhstan’s tenge and dollar bonds weakened slightly after news Moldovan businessman Anatolie Stati said he would ask bailiffs to sell a $5.2 billion stake in the Kashagan oil field owned by Kazakh sovereign wealth fund Samruk-Kazyna if Astana refuses to pay an arbitration award.

Last October, $22.6 billion in assets held by Kazakhstan’s National Fund were also frozen, following a lawsuit by Stati.

“(The freeze) really should raise alarm bells amongst all sovereign wealth funds and central banks globally about the assumed immunity’ of their assets that are mainly held in ‘safe havens’ such as U.S. Treasuries,” Legal & General Investment Management’s Simon Quijano-Evans told clients.

For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see) (Reporting by Sujata Rao, Claire Milhench and Karin Strohecker; Editing by Robin Pomeroy)

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