Political uncertainties dampen the global risk appetite

Banking stocks snapped a six-day losing streak, to rise 1.4 percent, making them the top gainers. EMERGING markets yesterday struggled after Britain’s surprise snap election call added to political uncertainties globally, from France’s nail-biting election race to tensions on the Korean peninsula, that have somewhat dampened risk appetite.

Stocks fell to a one-week low in a second day of losses, while many currencies weakened against a firmer dollar.

MSCI’s emerging equity benchmark index fell 0.3 percent, dragged down by Asian heavyweight Taiwan falling more than 1 percent while South Korea’s bourse slipped 0.5 percent. That offset gains in Turkey, South Africa and emerging Europe.

The dollar’s gains against a basket of currencies and a renewed bid for safe-haven bonds added to pressure on many emerging currencies.

“We have had a period of low volatility, so it would be unsurprising if we enter a period of higher volatility – especially as we have European elections and geopolitical risks around the world, so ‘The emerging market rally can extend further, but it won’t be linear.’ we may see emerging market currencies correct from time to time,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

“The emerging market rally can extend further, but it won’t be linear,” he said, noting that the fundamental global growth picture was still benign.

South Africa’s rand traded 0.5 percent weaker against the dollar after having rallied almost 5 percent since early last week. Investors are increasingly sceptical that a mooted no-confidence vote in President Jacob Zuma will be successful.

“I don’t think this is going to happen and we are seeing the rand quite strong com- pared to where it should be,” Maggio said, adding the rand should be closer to 14 than 13 per dollar.

Meanwhile the country’s new Finance Minister, Malusi Gigaba, ruled out radical policy changes, while latest data showed headline consumer inflation slowed more than expected in March.

Turkey’s lira and Mexico’s peso both weakened 0.3 percent, but Russia’s rouble strengthened 0.2 percent, in line with a rise in crude oil price. – Reuters