Emerging markets hit by fears of Fed’s plans

London - The rout in emerging market assets gathered pace yesterday, extending to the Turkish lira which, with India’s rupee, hit new record lows in a sell-off prompted by the expected tailing off of extraordinary US money printing.

The US Federal Reserve was due to publish the minutes of its most recent meeting later in the day. Investors hoped for some clarity about the timing of plans to pare its quantitative easing programme.

Turkey’s lira fell to a record low just a day after the central bank raised interest rates by half a point to bolster the currency – a move deemed by markets to be an inadequate policy response given the challenges facing emerging markets.

The Fed’s largesse has been a major factor in the recent success of emerging markets. Since the start of this month, however, currencies from countries such as India, Indonesia and Brazil have fallen more than 5 percent against the dollar.

Emerging equities slumped for the fifth consecutive session yesterday, taking losses this month to more than 2 percent.

“The market is broadly trading with tapering fears in mind,” Citi debt and currency strategist Luis Costa said.

Fears of the steady reduction in the amount of cash pumped into world markets from the US are taking a toll on emerging markets in general, but especially those such as India and South Africa that rely heavily on foreign capital to plug funding deficits.

The rand fell more than 1 percent to new six-week lows to the dollar in early trade.

In Indonesia foreigners dumped $430.5 million worth of stocks from Friday to Tuesday, during which time Jakarta shares lost nearly 11 percent.

Analysts reckon there is more pain ahead for emerging markets, especially if the Fed tapers as expected. – Reuters