LONDON, Sept 26 (Reuters) - Emerging stocks dropped 1 percent on Wednesday on concerns about developments in Spain and Greece, while Hungarian assets fell following a rate cut a day earlier.
Protesters clashed with police in Madrid on Tuesday ahead of the unveiling of Spain’s 2013 budget on Thursday and Greeks held a general strike as ministers sought to renegotiate a bailout.
High-yielding emerging market stocks had leapt more than 3 percent the day after the Federal Reserve announced a third, open-ended programme of ‘quantitative easing’ (QE) money-printing this month.
But concerns about the euro zone periphery have since come back into the spotlight.
“There is a pause in positive sentiment after QE3, people are more focused on Spain,” said Luis Costa, emerging markets strategist at Citi.
Benchmark emerging equities fell 1 percent to 12-day lows and are only 1 percent stronger than at the close on Sept 13, when Fed boss Ben Bernanke made the QE announcement.
But emerging stocks are still up 5 percent on the month, buoyed by the European Central Bank’s programme to buy government bonds, which could lead to fund rotation back into emerging markets.
The forint hit a two-week low and Hungary’s debt insurance costs widened by 17 basis points to 395 bps in the five-year credit default swap market, according to Markit, after the central bank cut rates by a quarter point on Tuesday.
The cut was the second in a row and the bank flagged further possible easing, with dovish rate-setters seemingly prioritising growth over a fight against inflation.
Emerging European currencies were generally steady to weaker. The Czech central bank is expected to cut rates this week, while Romania’s central bank is forecast to stay on hold.
Reporting by Carolyn Cohn and Sujata Rao