December 20, 2018 / 9:38 AM / 6 months ago

EMERGING MARKETS-Emerging market stocks hit 1-month low after Fed; FX buoys

* South Korea’s Kospi in bear market

* China shares at 2-month lows on new lending tool

* EM currencies steady against soft dollar

By Agamoni Ghosh

Dec 20 (Reuters) - Emerging market shares hit a one-month low on Thursday, taking their cue from Wall Street which plunged after the U.S. Federal Reserve raised rates and signalled more hikes in 2019, dashing investor hopes for a more dovish outlook.

The Fed raised key rates by 25 basis points and trimmed its median forecast from three to two hikes next year, but said strong data could force it to raise rates to the point where they start to brake the U.S. economy’s momentum.

The U.S. dollar strengthened after the announcement but later retreated to fall 0.4 percent, lending strength to most developing world currencies.

MSCI’s index for emerging market stocks fell about 1 percent as indices across Asia fell, with South Korea’s Kospi heading into bear market territory and bourses from Johannesburg to Istanbul racking up hefty losses.

“The markets had priced in a bit too dovish Fed but the EM reaction was more or less expected,” said Jakob Christensen, head of EM research, Danske Bank.

Mainland China shares , ended at two-month lows after the central bank announced a new targeted lending tool.

“The weakness in China will continue to weigh on EM until Q1 of 2019, with the U.S.-China stand off getting better and lending support to China’s current vacuum,” added Christensen.

Russia’s MOEX index hovered around three-week lows, led by a decline in shares of energy companies as oil prices erased most of their gains from the previous session.

Aluminium giant Rusal, however, soared 22 percent, after news that the U.S Treasury will lift sanctions on the core empire of Russian businessman Oleg Deripaska.

Currencies in the developing world were mostly steady with the exception of the Chinese yuan and the Indonesian rupiah, which fell after its central bank kept benchmark interest rates on hold but pledged to defend the currency if needed.

In Eastern Europe, the Czech crown was treading water against the euro ahead of its central bank’s meeting where policy makers are expected to keep the two-week repo rate at 1.75 percent.

The Hungarian forint was mildly stronger, unscathed by a sharp decline in the Q3 current account surplus and a Moody’s report which said the country’s policy responses would be tested by more challenging external conditions in the coming years.

For GRAPHIC on emerging market FX performance 2018, see For GRAPHIC on MSCI emerging index performance 2018, see

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Agamoni Ghosh in Bengaluru; Editing by Jon Boyle)

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