LONDON, June 24 (Reuters) - Emerging stocks fell for a fifth straight day to one-year lows on Monday, led by a drop in Chinese stocks on worries about tight monetary policy, and the Turkish lira hovered above record lows.
Risky emerging markets have been under pressure from indications the Federal Reserve will withdraw the bond-buying stimulus which has propelled yield-seeking investors overseas, and from concern about a slowdown in Chinese growth.
China’s central bank has engineered a tightening of cash in money markets as it tries to rein in excessive credit growth, especially in the lightly regulated “shadow banking” sector, seeing interest rates spike to 25 percent or higher for some deals late last week.
“The China story is something that people are aware of and keeping an eye on, but broadly people are still digesting the comments of the Fed,” RBS emerging markets analyst Mohammed Kazmi said.
“When there is a broad emerging markets sell-off, investors will be looking at stories which are looking negative. At the moment it is Turkey, where we still have protests, and possible strikes in South Africa.”
The MSCI emerging stocks index fell 1 percent to its lowest since June 2012, after dropping 6 percent last week, its biggest weekly loss in over a year.
China shares fell more than 5 percent on Monday to record their biggest daily loss since August 2009, driven by financial stocks, after the central bank said liquidity in the country’s financial system was “reasonable”.
The Turkish lira held above record lows after the central bank said it would sell at least $150 million on days when funding is provided from the policy rate.
Anti-government protests have dented the appeal of Turkey, which is heavily dependent on foreign investor flows.
Turkey’s five-year credit default swaps rose nine basis points to 230 bps, according to Markit, fresh 11-month highs. Turkish CDS have risen a steep 100 bps this month.
The rand fell more than 1 percent and South Africa’s CDS rose 6 bps to 252 bps, fresh four-year highs. South Africa has suffered from strikes in the mining sector in recent months.
South African president Nelson Mandela’s health was described as “critical” late on Sunday.
The shekel, which the central bank has attempted to weaken in recent weeks, dipped 0.25 percent to 13-day lows ahead of a central bank rate decision. A minority of analysts see a quarter-point cut.
“We are leaning towards a cut,” analysts at Societe Generale said in a note.
“An unchanged decision would send a message to the market that the central bank’s commitment to weakening the shekel is not set in stone.”