By: Rodrigo Campos
January 31, 2014
(Reuters) – Emerging market stocks and currencies extended their slide on Friday on fears of a protracted capital flight, while a gauge of global equities fell, on track to close its worst month in almost two years.
European and U.S. stock markets fell, cutting initial losses sharply, but could not prevent MSCI’s global index .MIWD00000PUS from heading to its largest monthly decline since May 2012. Emerging market stocks .MSCIEF were down 6.8 percent for the month, the worst start to a year since 2008.
Adding to pressure in emerging market currencies from Turkey to South Africa in previous sessions, the Russian rouble and Polish zloty slid against the U.S. dollar. Government borrowing costs jumped across weaker economies despite local policymakers’ efforts to stanch the bleeding.
Concern about growth in China and other emerging markets triggered the selling in developing economies late last week, with focus on countries with internal political and economic issues, like Ukraine and Argentina.
The U.S. Federal Reserve’s decision this week to continue to withdraw its monetary stimulus – one of the reasons for the flow of cash into emerging markets in recent years – compounded the problems in emerging economies.
“Pressure has now returned to haunt the key emerging market currencies whose central banks have so far raised the cost of borrowing, but pressure valves are also now being tested elsewhere,” said Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut.
Major U.S. stock indexes came off their session lows, with the S&P 500 trimming its losses by half, partly as short sellers bought in after sharp declines in stock indexes.
“I think the shorts are taking off some risk heading into the weekend. It’s been a decent couple of weeks for them and they are adjusting their positions as this week (and) this month come to an end,” said JJ Kinahan, chief strategist at TD Ameritrade in Chicago.
The Dow Jones industrial average .DJI fell 70.65 points, or 0.45 percent, at 15,777.96. The Standard & Poor’s 500 Index .SPX was down 3.82 points, or 0.21 percent, at 1,790.37. The Nasdaq Composite Index .IXIC was down 6.01 points, or 0.15 percent, at 4,117.11.
The FTSEurofirst 300 .FTEU3 index of top European shares closed down 0.24 percent after dropping nearly 1.7 percent at its session low.
In a move seen directly pressuring the Fed and European Central Bank, the International Monetary Fund urged central banks to ensure that a financial market rout in the developing world does not lead to an international funding crunch.
“I have been saying that the U.S. should worry about the effects of its policies on the rest of the world,” Reserve Bank of India Governor Raghuram Rajan said on Friday, a day after slamming what he said was a breakdown in global monetary coordination.
Poland delayed publication of its monthly debt supply plan until next week due to market turbulence and an overhaul of its pension scheme, a day after Hungary scrapped a bond sale because of a sudden spike in rates.
Gold Goliath is not your typical gold dealer.