By Sujata Rao
LONDON, May 25 (Reuters) - Emerging stocks resumed losses on Wednesday, down 0.6 percent on escalating concerns over the euro zone's debt problems and signs of slowing growth in China while the Turkish lira stood near a 13-week low ahead of a central bank rate decision.
The MSCI emerging equity index is down for the fifth week in a row as fears grow that Greece is headed for a debt restructuring and that analysts may have earlier overestimated the strength of the global economic recovery.
Losses so far this year are at over 3 percent while emerging European stocks fell 0.3 percent.
Markets across Asia also closed in the red, with Shanghai ending down 1 percent at a fresh four-month low while the Seoul, Mumbai and Taipei exchanges also fell sharply.
'It's very clear that we have a high risk environment. The market is pricing in more harsh developments for the euro area debt situation and realising the world economy as such is far from healthy,' said Arvid Bohm, strategist at SEB in Stockholm.
'There is concern about the macro environment in China and that has a huge influence over emerging markets and the world economy plus it's a large part of the EM equity index.'
Investors are concerned about the scale of Chinese policy tightening and how much it will slow an economy that is one of the chief drivers of world growth. The OECD said on Wednesday that Beijing needed to raise interest rates by a further 50 basis points.
Russian stocks rebounded a tentative 0.2 percent despite weaker oil prices.
Hungarian stocks fell 0.8 percent ahead of a final deal between the banks and the government on fixing an exchange rate for the thousands of households who took foreign currency-denominated loans and subsequently were hit by depreciation of the forint currency.
The move will not hit banks' FX positions but is not expected to completely clear their balance sheets of problematic loans.
'It remains to be seen to what extent the package will limit banks' room to manoeuvre in lifting the (foreclosure) moratorium and passing on costs to clients,' a dealer in Budapest said.
Shares in Hungarian oil and gas company MOL also fell more than 1 percent after it fell to nearly a three-month low in the previous session. Trading was suspended after the falls that were triggered by news Hungary would buy back a 21.2 percent stake in MOL from Russia's Surgut..
TURKEY LOSSES CONTINUE
Turkish stocks also fell 0.6 percent, with a 1200 GMT central bank meeting not expected to raise interest rates though it could again hike banks' reserve requirement ratios (RRR) in a continuation of a novel policy experiment.
Bohm said that with banks accounting for over half the Istanbul market cap, there is little prospect of a significant short-term recovery until the central bank signals that the reserve requirement hikes are at an end.
Turkish earnings growth estimates are now at 1.2 percent for this year, versus 4 percent expected earlier, he said, adding: 'I think there is a risk of negative earnings growth and that's in sharp contrast to all other emerging markets.'
The lira also weakened 0.2 percent against the dollar , paring some early losses as the euro staged a small recovery versus the greenback. The currency has lost 5 percent so far this month as investors, jittery about the central bank's policy, fled stock and bond markets.
Two-year lira bond yields rose to 9 percent, the highest since early April.
Emerging currencies overall were on the backfoot, with the dollar near a six-week high against a basket of currencies . There were sharp falls in Asian currencies too, with Korean won and Malaysian ringgit leading the losses.
In central Europe, most currencies were around 0.2 percent weaker against the euro.
Emerging sovereign bond yield spreads tightened 1 basis point.
(Editing by Patrick Graham) Keywords: MARKETS EMERGING (sujata.rao@thomsonreuters.com; +44 20 7542 6176; Reuters Messaging: sujata.rao.thomson.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, May 25 (Reuters) - Emerging stocks resumed losses on Wednesday, down 0.6 percent on escalating concerns over the euro zone's debt problems and signs of slowing growth in China while the Turkish lira stood near a 13-week low ahead of a central bank rate decision.
The MSCI emerging equity index is down for the fifth week in a row as fears grow that Greece is headed for a debt restructuring and that analysts may have earlier overestimated the strength of the global economic recovery.
Losses so far this year are at over 3 percent while emerging European stocks fell 0.3 percent.
Markets across Asia also closed in the red, with Shanghai ending down 1 percent at a fresh four-month low while the Seoul, Mumbai and Taipei exchanges also fell sharply.
'It's very clear that we have a high risk environment. The market is pricing in more harsh developments for the euro area debt situation and realising the world economy as such is far from healthy,' said Arvid Bohm, strategist at SEB in Stockholm.
'There is concern about the macro environment in China and that has a huge influence over emerging markets and the world economy plus it's a large part of the EM equity index.'
Investors are concerned about the scale of Chinese policy tightening and how much it will slow an economy that is one of the chief drivers of world growth. The OECD said on Wednesday that Beijing needed to raise interest rates by a further 50 basis points.
Russian stocks rebounded a tentative 0.2 percent despite weaker oil prices.
Hungarian stocks fell 0.8 percent ahead of a final deal between the banks and the government on fixing an exchange rate for the thousands of households who took foreign currency-denominated loans and subsequently were hit by depreciation of the forint currency.
The move will not hit banks' FX positions but is not expected to completely clear their balance sheets of problematic loans.
'It remains to be seen to what extent the package will limit banks' room to manoeuvre in lifting the (foreclosure) moratorium and passing on costs to clients,' a dealer in Budapest said.
Shares in Hungarian oil and gas company MOL also fell more than 1 percent after it fell to nearly a three-month low in the previous session. Trading was suspended after the falls that were triggered by news Hungary would buy back a 21.2 percent stake in MOL from Russia's Surgut..
TURKEY LOSSES CONTINUE
Turkish stocks also fell 0.6 percent, with a 1200 GMT central bank meeting not expected to raise interest rates though it could again hike banks' reserve requirement ratios (RRR) in a continuation of a novel policy experiment.
Bohm said that with banks accounting for over half the Istanbul market cap, there is little prospect of a significant short-term recovery until the central bank signals that the reserve requirement hikes are at an end.
Turkish earnings growth estimates are now at 1.2 percent for this year, versus 4 percent expected earlier, he said, adding: 'I think there is a risk of negative earnings growth and that's in sharp contrast to all other emerging markets.'
The lira also weakened 0.2 percent against the dollar , paring some early losses as the euro staged a small recovery versus the greenback. The currency has lost 5 percent so far this month as investors, jittery about the central bank's policy, fled stock and bond markets.
Two-year lira bond yields rose to 9 percent, the highest since early April.
Emerging currencies overall were on the backfoot, with the dollar near a six-week high against a basket of currencies . There were sharp falls in Asian currencies too, with Korean won and Malaysian ringgit leading the losses.
In central Europe, most currencies were around 0.2 percent weaker against the euro.
Emerging sovereign bond yield spreads tightened 1 basis point.
(Editing by Patrick Graham) Keywords: MARKETS EMERGING (sujata.rao@thomsonreuters.com; +44 20 7542 6176; Reuters Messaging: sujata.rao.thomson.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
© 2011 AFX News
