Emerging stocks plunge on N.Korea fears, set for worst 2017 week
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Emerging stocks plunge on N.Korea fears, set for worst 2017 week
By Claire Milhench

LONDON, Aug 11 (Reuters) - Emerging market stocks fell 1.4 percent to one-month lows on Friday and were set for their worst weekly performance since mid-December as tension between North Korea and the United States racheted up.

Stock markets across the globe have been hammered after North Korea threatened to fire missiles over Japan to land near the U.S. Pacific territory of Guam and U.S. President Donald Trump said such a move would prompt "an event the likes of which nobody's seen before".

MSCI's benchmark emerging markets index fell 1.4 percent and is set to end the week down around 2.4 percent.

The average yield spread of emerging market sovereign bonds over U.S. Treasuries was 311 basis points (bps), a one-month high, up 11 bps this week for the biggest weekly blowout since Trump's election win on Nov. 4 2016.

"There has been a sizeable reaction today. It looks like volatility is being stirred from very low levels," said Manik Narain, emerging FX strategist at UBS.

But he added it was still early to call it a "regime change" for emerging markets.

"Some of the moves are being exacerbated by fairly low summer trading volumes, and after a very strong run some of this is also an excuse to take risk off the table and reassess."

Unsurprisingly, South Korean assets were among the worst hit. Five-year credit default swaps were up 5 basis points (bps) from Thursday's close to 69 bps, according to IHS Markit, the highest since February 2016.

South Korean stocks are down 1.7 percent to 2 1/2-month lows and down over 3 percent for the week, their worst since June 2016. The tech sub-index lost the most ground, falling almost 3 percent.

Cho Byung-hyun, a securities analyst at Yuanta Securities in Seoul, said the tech selling was caused by foreigners seeing the events as a "good chance to take profits". Korea's tech-sub index had risen 40 percent this year by end-July.

Chinese mainland stocks fell 1.8 percent, their biggest daily slide since December. Trump has pressed China, which is North Korea's most important ally and trading partner, to do more to rein in Pyongyang.

Hong Kong shares fell 2 percent and are set to end the week down 2.4 percent. The market was also dragged lower by a 4 percent fall in Tencent Holdings after reports it is being investigated by a Chinese cyber authority.

On currencies, South Korea's won slid to one-month low and China's yuan fell 0.3 percent against the dollar, heading for its steepest one-day drop in six months.

Elsewhere, South African stocks fell 1.2 percent to end a seven-week winning streak. The rand slid 0.3 percent but held off one-month lows hit this week after President Jacob Zuma survived a no-confidence vote.

Investors are waiting to see if Moody's will cut South Africa's sovereign rating to sub-investment grade later in the day. Both Fitch and S&P Global cut the foreign debt rating to junk after Zuma fired Pravin Gordhan as finance minister .

In emerging Europe, Russian stocks fell 1.2 percent, Turkish stocks lost 1.3 percent and Polish shares dropped 0.5 percent.

The Polish zloty was trading near a five-month low against the euro with the Hungarian forint down at a two-week low.

For GRAPHIC on emerging market FX performance 2017, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see http://tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see)

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1041.85 -14.36 -1.36 +20.83

Czech Rep 1017.86 -8.01 -0.78 +10.44

Poland 2367.30 -15.37 -0.65 +21.53

Hungary 36659.04 -162.40 -0.44 +14.55

Romania 8320.71 -10.51 -0.13 +17.44

Greece 824.43 -9.35 -1.12 +28.09

Russia 1013.68 -15.58 -1.51 -12.03

South Africa 48767.43 -535.84 -1.09 +11.08

Turkey 06958.63 -841.79 -0.78 +36.88

China 3209.80 -51.94 -1.59 +3.42

India 31233.08 -298.25 -0.95 +17.30

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 26.17 26.18 +0.02 +3.19

Poland 4.28 4.28 -0.11 +2.86

Hungary 305.72 305.29 -0.14 +1.01

Romania 4.57 4.57 -0.04 -0.86

Serbia 119.65 119.79 +0.12 +3.09

Russia 60.20 60.11 -0.15 +1.77

Kazakhstan 333.30 332.66 -0.19 +0.11

Ukraine 25.68 25.67 -0.04 +5.14

South Africa 13.47 13.45 -0.20 +1.90

Kenya 103.86 103.90 +0.04 -1.43

Israel 3.58 3.59 +0.02 +7.42

Turkey 3.55 3.54 -0.13 -0.52

China 6.67 6.65 -0.29 +4.16

India 64.16 64.09 -0.11 +5.90

Brazil 3.18 3.18 +0.01 +2.46

Mexico 17.98 17.97 -0.07 +15.20

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 332 2 .04 7 91.55 1

(Additional reporting by Sujata Rao)

2017-08-11 11:22:13


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