LONDON: Emerging equities approached two-week lows on Tuesday pressured by sluggish economic growth and fears of default in Malaysia while Saudi shares pulled back from the 3-1/2 month highs hit after the kingdom unveiled its reform plan on Monday.
Investors were also starting to retreat to the sidelines before crucial central bank meetings in Japan and the United States. With U.S. growth looking increasingly anaemic, few expect the Federal Reserve to make a move this week though it could signal whether a June rate rise is likely.
While dovish central banks are good news for emerging markets, their own economies show few signs of recovery. South Korean growth halved in the first quarter to 0.4 percent while Taiwanese growth is seen contracting .
MSCI's emerging equity index was flat, recouping earlier losses as European bourses opened higher and helped by half percent gains in Hong Kong and mainland China .
"This EM rally has been effectively one-way traffic since late January for equities and mid-February for FX and credit so a little pause and profit-taking isn't that surprising after quite a strong run-up," UBS strategist Manik Narain said.
There are also fears a missed $50 million coupon payment by state fund 1Malaysia Development Bhd (1MDB) could spill over to the sovereign after triggering cross defaults on two other bonds.
Malaysian stocks fell 1 percent while the ringgit slipped 0.8 percent to a one-week low versus the dollar.
Societe Generale advised clients to sell ringgit in favour of the Indonesian rupiah, noting "political and policy risks are underpriced.....including whether there will be a credible successor to (central bank) governor Zeti, to possible deterioration in the 1MDB saga."
Meanwhile, an oil price decline took a toll on Russian and Gulf assets, with Saudi stocks in particular falling 1.3 percent after surging 2.5 percent on Monday, its biggest one-day rise in six weeks.
Investors have welcomed the reform plan but remain sceptical about implementation and many took profits on the stocks which had gained the most. Financial Group Samba, for instance, fell 5 percent after Monday's 9 percent jump.
In eastern Europe, the forint pulled back 0.2 percent to two-week lows before a central bank meeting that is expected to cut rates by 15 basis points. The Polish zloty, however, pulled back slightly from one-month lows .
Russian assets were under pressure from oil prices with stocks down 1 percent and the rouble pulling further away from 5-1/2 month highs hit earlier in the week .
In bond news, Abu Dhabi garnered a $17.5 billion-plus book for its $5 billion two-part bond, selling the tranches at 80 and 125 basis points (bps) over Treasuries.
Comments
Comments are closed for this article.