Emerging stocks snap 4-day rally

Reuters

London

Weak sentiment in China halted a four-day rally in emerging market stocks yesterday, though there was no stopping the resurgent rouble as steadier oil and central bank muscle-flexing lifted it to a two-week high.

The MSCI emerging stocks benchmark was down 0.5% after falls of as much as 4% in bank and infrastructure firms’ shares had seen Chinese bourses post their biggest daily drop in two weeks.

In Europe, trading was heavily reduced ahead of the Christmas break but there was continued focus on a rebound in Russian assets, hammered in recent weeks by the plunge in oil prices and tensions with the West over Ukraine.

With oil holding above $60 a barrel and Russian banks and exporters said to be selling hard currency on the orders of the central bank, the rouble was up 2.8% against the dollar in its fourth rise in five days.

Dollar-denominated stocks also climbed 1.7% as they took their gain over the last week to a staggering 45%, and Russian bond markets rose too as their outperformance continued.

“It is difficult to get of sense of what has happened over the last week; it went from a crazy sell-off to flattening off in a day and now coming back again,” said Regis Chatellier, Director EM Sovereign Credit Strategy at Societe Generale. “What it important in my view is that oil has stopped falling, and that has an important psychological impact for emerging markets.”

Greece, which is now part of the main emerging market indices, was also in the spotlight as its parliament failed to elect a new president at the second time of asking.

If it fails again in the final round of voting next week, it will trigger a general election in February. That could bring the anti-IMF/EU bailout Syriza party to power and revive fears about Greece’s future in the euro.

Greek bond yields rose back above 8.1% while Athens’ main stock market tumbled 1.5%, hovering near a 1-1/2 year low.

Elsewhere, the steadying of oil prices at around $60 a barrel helped keep the main Middle Eastern stock markets in tight ranges, though emerging market currencies were broadly a touch lower against the dollar.

In eastern Europe, the Polish zloty edged back towards 15-month lows after data showed a surprise fall in retail sales and slightly higher-than-expected unemployment in November.

Most central banks in the region have cut interest rates to record lows and some analysts are pencilling in more, especially if the ECB begins a QE programme.

Hungary’s central bank has pledged to keep its record-low 2.1% base rate unchanged until the end of next year as growth in central Europe’s most indebted economy is set to slow.