In­vestor ap­petite for risk is tak­ing a dive

The Star Early Edition - - BUSINESS REPORT -

MID­DLE East ten­sions, Bri­tain’s elec­tion and Don­ald Trump’s trou­bles com­bined to dampen in­vestors’ risk ap­petite on emerg­ing mar­kets yes­ter­day, with cur­ren­cies suf­fer­ing and stocks edg­ing lower for a sec­ond day.

The de­ci­sion by sev­eral Arab states to cut diplo­matic ties with Qatar, ac­cus­ing it of sup­port­ing ter­ror­ism, made mar­kets – es­pe­cially in the re­gion – un­easy.

Also adding to the frayed nerves were three key events sched­uled for to­day – Bri­tain’s gen­eral elec­tion, a Euro­pean Cen­tral Bank pol­icy meet­ing and tes­ti­mony by for­mer FBI di­rec­tor James Comey, which could im­pact on US Pres­i­dent Don­ald Trump’s eco­nomic agenda.

Losses

MSCI’s emerg­ing stock bench­mark slipped 0.2 per­cent, with heavy­weight South Korea falling 0.4 per­cent, while bourses else­where in Asia, Tur­key and parts of emerg­ing Europe also suf­fered losses.

“There are wor­ries about the Gulf Co-op­er­a­tion Coun­cil (GCC) and Qatar and how that will play out… It’s a geopo­lit­i­cal oil story that has created very much a risk off sen­ti­ment,” said Per Ham­mar­lund at SEB.

“In the UK, peo­ple are sit­ting on the side­lines and wait­ing to see how this will pan out if you have an ac­ri­mo­nious Brexit that will hurt the cen­tral and eastern Euro­pean coun­tries, and it could hurt the EU too, so it has wider ram­i­fi­ca­tions.”

Mar­kets in the Gulf re­mained un­der some pressure af­ter US Pres­i­dent Don­ald Trump sup­ported Saudi Ara­bia against Qatar.

Qatar’s stock ex­change fell 0.3 per­cent, hav­ing tum­bled nearly 9 per­cent over the last two days.

Doha’s dol­lar-de­nom­i­nated debt edged lower across the curve, with some is­sues trad­ing at their weak­est in around 2½ months.

Soft start

Cur­ren­cies fared lit­tle bet­ter, de­spite a steady dol­lar.

South Africa’s rand has had a soft start to the ses­sion af­ter data showed on Tuesday that Africa’s most in­dus­tri­alised na­tion had slipped into re­ces­sion for the first time in eight years.

The news raised the prospect of fur­ther credit rat­ing down­grades and heaped pressure on Pres­i­dent Ja­cob Zuma, who is al­ready fac­ing cor­rup­tion al­le­ga­tions.

How­ever, the rand re­cov­ered most of its losses to trade 0.2 per­cent weaker af­ter cen­tral bank data showed Forex re­serves grew un­ex­pect­edly.

“The down­grade ques­tion is def­i­nitely one of the fac­tors,” said SEB’s Ham­mar­lund, re­fer­ring to Moody’s next as­sess­ment sched­uled for re­lease to­mor­row.

Pos­i­tive cy­cle

“But if you look at the rand and emerg­ing mar­kets in gen­eral over the longer term, you are still look­ing at a pos­i­tive cy­cle – the wor­ries about the rand will be short lived.”

Rus­sia’s rou­ble and Mex­ico’s peso also weak­ened against the dol­lar.

In Poland, cen­tral bank pol­icy mak­ers are sched­uled to con­clude their in­ter­est rate set­ting meet­ing, though an­a­lysts ex­pect no change un­til the third quar­ter of 2018 given the be­nign out­look for in­fla­tion.

In­ter­est rates are at an all­time low of 1.5 per­cent. – Reuters

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