Adrian Lowery: ‘The world is catching emerging markets flu’: UK and US shares take a hit as plunging currencies worry global investors” -Mail Online

Posted on :Jan 26, 2014

By: Adrian Lowery

Mail Online

January 26, 2013

  • FTSE 100 falls  1.6% to five-week low and US shares down 2%
  • European shares  suffer biggest fall in seven months as fears over Argentinian peso crisis  grow
  • Political  instability in Ukraine and Turkey add to investors’ worries over cuts to  quantitative easing

Shares around the world were hit yesterday as  concerns over emerging markets saw global investors sell stocks and dive into  safe-haven assets.

The London market sank to a five-week low,  with the FTSE 100 falling 1.6 per cent as Latin American currencies like the  Argentinian peso suffered massive falls.

The blue-chip index lost 109.54 points to  6,663.74 – its lowest close since December 20 – and was followed by falls on  Wall Street, where the S&P 500 stock index tumbled 2.0 per cent. The Dow  Jones industrial average also lost 2 per cent.

European shares suffered their biggest fall  in seven months and the FTSEurofirst 300 index erased all its gains for 2014, to  stand down 1.1 per cent on the year.

Traders were driven to sell by worries over  slowing China growth, the prospect of the US Federal Reserve further cutting its  quantitative easing programme, as well as a conflagration of political problems  in Turkey, Argentina and Ukraine.

Next week’s crunch Federal Reserve meeting will be Ben  Bernanke’s last as Chairman.

‘The world is suffering from the  emerging  markets’ flu,’ said Michael James, managing director of equity  trading at  Wedbush Securities in Los Angeles.

The  Turkish lira hit a record low as the cost of insuring against a Turkish default  rose to an 18-month high.

The peso suffered its steepest daily decline  since the country’s devastating 2002 financial crisis, on top of falls on  Thursday, after central bank gave up a battle to prop up the  currency.

Having shed more than 30 per cent of its  reserves last year, the central bank this week surprised traders by abandoning  intervention in the foreign exchange market.

The new policy increased worries about what  is already one of the world’s highest inflation rates.

‘We expect the emerging market sell-off to  get worse before it starts getting better,’ said Lorne Baring, managing director  of B Capital Wealth Management in Geneva. ‘There’s definitely contagion  spreading and it’s crossing over from emerging to developed in terms of  sentiment.’

‘It’s just the final realization that  [emerging markets] can’t continue to grow as an economy the same way they did  before,’ said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds  in New York.

The FTSE 100 hit a recent low of 6,440 in December but had recovered to nearly 6,840 before recent falls.

The FTSE 100 hit a recent low of 6,440 in December but  had recovered to nearly 6,840 before recent falls.

‘It’s a combination of less liquidity for  these countries that depended on foreign money and China kind of throwing some  curve balls as well.’

The Fed last month shaved $10billion off its  monthly purchases of bonds to $75billion. The bank holds a policy  meeting next  Tuesday and Wednesday and is widely expected to make  further reductions to its  asset-buying.

Investors responded to the uncertainty by  buying into safe-haven assets like the Japanese yen and Swiss franc, and highly  rated government bonds. German Bund futures rose and 10-year US Treasury yields  hit an eight-week low below 2.75 per cent.

Gold hit a two month high, gaining for a  fifth straight week, as weaker equities burnished its safe-haven appeal. Spot  gold rose to as high as $1,272.70 from $1263.95 on Thursday.

In London, Aberdeen Asset Management – the  investment giant with massive exposure to emerging markets – shed 5.7 per cent,  and was the FTSE’s top faller, while itsrival Ashmore was among the biggest FTSE  mid-cap losers.

‘Obviously the market is separating the wheat  from the chaff – Aberdeen Asset Management has got huge emerging markets  exposure,’ Ed Woolfitt, head of trading at Galvan, said.

‘I won’t be charging in right here, right  now, but if we find support (around) these levels over the next day or two, this  would be a good buying signal for the UK equity market.’

Gold Goliath is not your typical gold dealer.

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