London - Emerging markets tumbled to multi-month lows on Thursday, hit by Greek political disarray that is threatening to derail its debt rescue plan.
|||London - Emerging markets tumbled to multi-month lows on Thursday, hit by Greek political disarray that is threatening to derail its debt rescue plan.
Central and eastern European markets took heavy losses but Kenya's shilling led broader currency losses to fall over 2 percent to the dollar.
The inability of Greek leaders to reach agreement on an austerity package crucial for continued international funding knocked global markets, with the euro sinking to a lifetime low against the Swiss franc .
Risk appetite further deteriorated as Ireland moved to compel senior bondholders to share losses at its two defunct banks.
“The worry is contagion, with headline risk coming out of Greece, that can become a trigger for things to escalate if not sorted out in good time. In terms of contagion, there is impact for Western banks in Eastern Europe,” said Roderick Ngotho, senior CEEMEA forex strategist at Royal Bank of Scotland.
Though central European options don't appear to be pricing in a major event in the next one to two months, risk sentiment is likely to stay fragile, Ngotho said.
“Any improving risk appetite reverts easily back to risk aversion,” he added.
The benchmark emerging equity index sank 1.7 percent by 1130 GMT to three-month lows while emerging sovereign debt widened 4 basis points to trade at 295 bps over U.S. Treasuries.
In the overnight Asian session, Chinese shares had fallen 1.5 percent to their weakest levels in five months.
Emerging European shares were down 0.8 percent with the strength of the Swiss franc particularly worrying for eastern European economies such as Hungary where many outstanding foreign-currency consumer loans are denominated in the currency.
Hungary's forint slipped to its lowest in three weeks while the Czech crown and Polish zloty sank some 1 percent to 1-1/2 week lows against the euro.
The Romanian leu fell 1 percent to over three month lows against the common currency.
The cost of insuring sovereign debt for Hungary , Romania and Bulgaria over five years rose to three-month highs.
Russian shares slipped 1.7 percent while Turkish shares fell half a percentage point to their lowest in three months.
The lira retreated to its weakest in over three months versus the dollar while Turkish five-year credit default swaps rose nearly 5 bps to their highest levels since late February.
Turkey's widening current account deficit has come sharply into focus following Sunday's general election where the ruling AK Party secured 50 percent of the vote.
“We thought there would be a relief rally on the outcome of the election but that proved to be a bit of a non-starter. There are other concerns - about the funding of the current account deficit, especially with what's going on with Greece,” said Ngotho.
Kenya's shilling continued to plumb record lows against the greenback , hit by worries over a widening current account deficit as well as rising oil and food prices.
Offering a counterpoint to otherwise bearish sentiment, Dubai launched a $500 million 10-year bond at the lower end of its price guidance.
The bond is the emirate's second after its flagship conglomerate shocked investors by calling for a standstill on its debt in 2009. - Reuters
Source: http://www.iol.co.za/emerging-markets-tumble-as-fears-intensify-1.1084363
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