Rally falters as China, commodity pressures return

LONDON: Emerging market stocks took their first significant tumble of the month on Tuesday on fresh signs of domestic weakness in China and another bout of volatility in commodity markets.

A 20.4 percent year-on-year fall in Chinese imports underscored the slowdown in the world's number two economy and saw some brisk profit taking after a 12 percent rise and 8 days of gains in the last 9 for MSCI's main EM index.

It was down more than 1 percent on Tuesday. There was also selling in key currency and bond markets, including South Africa, Mexico, Turkey, Indonesia and Russia as investors beat a general retreat from higher risk developing markets.

"The Chinese data has not been well received," said Bernd Berg, an EM strategist at Societe Generale in London. "This is the first 'risk off' leg we have had after pretty much a 9-day global rally."

"Imports are down 20 percent year-on-year so it tells us that domestic demand remains on the weak side."

Hopes for more economic stimulus measures from Chinese authorities had helped keep Chinese stocks steady however despite the weakness almost everywhere else.

The country's authorities are due to announce a new five-year plan for the economy later this month that is expected to keep the focus on growth.

Elsewhere in Asia, the Indonesian rupiah and Malaysian ringgit had both taken particularly heavy hits overnight after oil had wiped out most of its recent rebound with a 5 percent drop.

Singapore's dollar slid too ahead Wednesday's meeting of the country's central bank which is expected to see it loosen its exchange-rate based monetary policy for the second time this year. Russia's rouble - which is also closely tied to oil's fortunes - was heading for its biggest drop in almost two-weeks.

The country's central bank governor, Elvira Nabiullina, stirred expectations of possible interest rate cuts as she said in an interview that Russian inflation would soon start falling "quite abruptly."

Turkish markets remained under pressure ahead of uncertain national elections at the start of next month and after a major suicide bombing at the weekend.

Poland's zloty and the Czech crown had been among the few to show some resistance to the general EM weakness.

But they began to strain too as business sentiment data from Germany, their biggest export partner, came in weak. It was first to show the effects of the recent Volkswagen emission test scandal. Central Europe makes one in every six cars produced in the EU.