News Column

Stocks slide anew on emerging markets

January 29, 2014

Jitters over emerging economies resurfaced After a strong Asian session and positive European open, world markets shifted course and fell on Wednesday as jitters over the prospects for emerging economies resurfaced. Turkey's central bank hiked its lending rates overnight by more than expected to stabilise the Turkish lira and keep inflation under control. That gave an initial boost to its currency and to world markets. But the effect gradually faded, and a surprise move by South Africa's central bank to raise rates in the early afternoon only strengthened its currency for a half-hour. That shook confidence in markets more broadly, pushing stocks lower. "I guess the biggest reason for this volatility is that we've seen the impact of a major intervention by Turkey fade so quickly," said IG market analyst Alastair McCaig . "Now South Africa has done the same thing and it only boosted the rand for about a half hour." In the background, investors were anticipating a decision by the US Federal Reserve to further "taper," or reduce, its mortgage and long-term bond purchases later yesterday. Although the Fed insists tapering is not equivalent to monetary tightening, if markets interpret it as even a prelude to tightening, it has the potential to again weaken emerging currencies as investors prefer to hold dollars. "It's not so much that people think there will be instant ramifications if the taper proceeds as expected, it's just part of a more general worry about what it may mean for global stability," McCaig said. Stocks began a sell-off last week, initially on fears about the Chinese economy. The slide continued as currencies in emerging economies including Argentina and Turkey slumped. After Turkey's action Wednesday night, Asian stocks gained strongly. Japan's Nikkei 225 jumped 2.1 per cent to 15,294.54 and Hong Kong's Hang Seng rose 1.1 per cent to 22,191.20. China's Shanghai Composite was up 0.3 per cent at 2,044.93. South Korea's Kospi added 1.2 per cent. Indonesia's benchmark climbed 1.7 per cent. In Europe , indexes initially gained sharply and then slid, turning negative before the open of US trading. Germany's DAX was 0.2 per cent lower at 9,388.22. Britain's FTSE was down 0.3 per cent to 6,551.21, while France's CAC 40 was off 0.6 per cent at 4,160.34. Dow Jones Industrial Average index futures, which had initially indicated gains, plunged 126 points to 15,750. S&P 500 index futures were off 13.75 points to 1774.5. Benchmark oil for March delivery was down 24 cents to $97.17 per barrel in electronic trading on the New York Mercantile Exchange . In currencies, which were highly volatile, the euro fell 0.4 per cent to $1.3618 . The dollar erased early gains and fell sharply against the yen, down 0.6 per cent to 102.34 yen .


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Source: Khaleej Times (United Arab Emirates)


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