LONDON: An emerging market rout kept Russia's rouble, Malaysia's ringgit, Turkey's lira and Israel's shekel under fire on Monday, as another 1 percent drop for EM stocks left them at an almost four-year low.
The shockwaves from last week's devaluation of China's yuan were starting to fade but there was plenty to worry investors elsewhere.
A surge in fighting between Ankara and Kurdish militants, fears of snap elections and a central bank meeting on Tuesday helped send Turkey's lira to a record low.
Russia's rouble also touched a six-month low as another drop in oil prices - crude is Russia's' biggest export - and an upsurge in fighting in east Ukraine hit sentiment there.
The pressure in Asia overnight had remained intense. Fears of possible 1997/98-style capital controls sent Malaysia's ringgit and stocks to new multi-year lows and Thailand's baht to a six-year low.
"This is a proper emerging market FX trade-weighted sell off," said Manik Narain, a emerging market economist at UBS in London.
He added that with many investors also having hedged their EM local currency bond positions with now loss-making bets on euro falls, there was a growing threat that those bonds would soon have to be sold to minimise losses.
In a sign of the deteriorating sentiment, the cost of insuring Turkish, South African and Russian government bonds against default using CDS hit their highest in almost 17-, 8- and 6-months respectively.
Spreads on JP EMBIG index, which reflect the premium investors demand to hold EM bonds rather than ultra-safe US government bonds, were also their widest in almost 17 months for Turkey, and at almost two year highs for South Africa.
The flare up in fighting in Ukraine and uncertainty about its debt-restructuring talks pushed Kiev's dollar-denominated debt lower.
The rest of central and eastern Europe was relatively sheltered, with currencies, bonds and stocks in Poland, Hungary and Czech Republic barely budging. Those markets have very little exposure to China.
But Israel's shekel fell 0.63 percent against the dollar , after weak GDP data at the weekend fuelled expectations of more easing from its central bank. [ID: nL5N10R094]
"It might create some discussions around how the Bank might go about this weakness in export activity ahead of their meeting on Monday next week." said Roxana Hulea, emerging markets strategist at Societe Generale.
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