LONDON: Emerging stocks snapped a four-day winning streak on Thursday and currencies came under pressure after Federal Reserve officials rekindled the prospect of a December interest rate hike, while the Kazakh tenge crashed to record lows.
MSCI's benchmark emerging market index slipped 0.5 percent, with bourses in Turkey and Greece losing around 1 percent and shares in South Africa, Russia and much of eastern Europe posting losses.
Currencies broadly weakened against the dollar with Turkey's lira and Israel's shekel slipping 0.3 percent and Russia's rouble and South Africa's rand weakening 0.2 percent - the latter hitting its lowest level in nearly two weeks.
China's yuan came under additional pressure from uncertainty over when the International Monetary Fund would discuss whether to include the currency in its Special Drawing Rights basket.
The dollar traded at a three-month high against a basket of major currencies after Federal Reserve Chair Janet Yellen on Wednesday pointed to a possible December interest rate "liftoff".
"Emerging markets are in a mood when they follow each word of global central bankers, so the market is reacting to that," said Tatiana Orlova, senior economist for CIS and Israel at RBS. Kazakhstan's tenge currency fell more than 4 percent, hitting an all-time low of 301.00 to the dollar after a reshuffle at the central bank earlier in the week.
The central bank abandoned its pegged exchange rate policy in August but resumed heavy interventions from mid-September when the tenge touched 300 per dollar.
"They tried to switch to a floating foreign exchange regime and it hasn't worked," said Orlova, adding that Friday's central bank meeting with new governor Daniyar Akishev would be in focus.
"Will they admit that the float has failed and go back to the peg? The main task will be to restore credibility of the central bank." In Romania, stocks fell 0.5 percent and the leu traded flat against the euro after Prime Minister Victor Ponta, who is facing a trial for corruption, quit on Wednesday after street protesters demanded resignations over a deadly fire in a Bucharest nightclub.
"Though this will likely increase uncertainty in the short-term, medium-term this will probably lead to a more fiscally responsible government, with a higher likelihood of an IMF agreement next year " JPMorgan analysts wrote in a note. Elsewhere in eastern Europe, the Czech crown traded flat against the euro as the Czech National Bank board meeting was under way, with policy makers expected to uphold the weak crown policy.
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