Fed takes the steam out of emerging markets

Friday, 22 September 2017 00:00 - - {{hitsCtrl.values.hits}}

London (Reuters): Emerging stocks and currencies fell on Thursday after the US Federal Reserve confirmed it would reverse its stimulus program from next month and stick to rate hike plans.

On Wednesday, the Fed left interest rates unchanged as expected after concluding a two-day policy meeting, but signalled it still expects one more rate hike by the end of the year despite a recent bout of low inflation.

The move pushed the dollar index to a two-week high overnight and ramped up pressure on many emerging currencies which have seen stellar gains since the start of the year.

Mexico’s peso chalked up some of the biggest losses, weakening as much as 0.5%. India’s rupee skidded to a two-month low while China’s yuan eased 0.2%.

Turkey and South Africa – twocountries vulnerable to Fed moves due to their current account deficits - saw their currencies slip 0.3% to the weakest in around five weeks.

Russia’s rouble proved the exception to the rule, snapping a four-day losing streak to strengthen 0.2% and shrugging off weaker oil prices.

Stocks fared little better with MSCI’s benchmark emerging market stock index down 0.3% as bourses in South Korea, Hong Kong, mainland China as well as much of Europe sold off.

In Russia, dollar stocks lost 0.8% with financial stocks retreating once again as the central bank said it would rescue B&N Bank. The move to prop up the country’s 12th largest lender by assets raised questions about the stability of the sector and the efficiency of the central bank’s supervision.