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Global markets rattled over emerging economies’ volatility
February 3, 2014, 6:25 am

Fears of dwindling prospects in emerging economies are rattling some global markets.

On Monday, Japan’s Nikkei Average fell 1.24 per cent on concerns of volatility in emerging markets triggered by a slowdown in Chinese manufacturing.

China’s Bureau of Statistics earlier released data which showed that the country’s purchasing managers’ index (PMI) for the manufacturing sector dropped to a five-month low to 50.5 per cent in January, continuing the trend for a second month.

A PMI reading below 50 indicates contraction; above 50 signals expansion.

The Nikkei drop has been the highest in Asia so far. On Sunday, China’s Hang Seng and Shanghai indices were also down 0.48 per cent and 0.82 per cent respectively. In South Korea, the Kospi index was down 1.09 per cent.

In London, the FTSE All-World equity index has also been affected by investor confidence in emerging markets and China’s slowing economy; it registered losses throughout January, falling 3.8 per cent.

EPFR Global, a US-based firm that tracks the flows and allocations of funds domiciled globally, says that emerging markets – which form 40 per cent of the world’s economy – have suffered from an outflow of $12.2 billion in equity.

Most investors are redirecting this equity back into US and European markets.

Fears in emerging markets – added to a strengthened dollar and the US Federal Reserve’s stimulus tapering – may also have long-term effects on oil and energy markets.

On Monday, NYMEX crude oil futures for March delivery  fell during 0.32 per cent to $97.21 during Asian trading hours.

A strengthened dollar, particularly against emerging market currencies, can contribute to considerable deficits as the world continues to push its way out of recession.

The Turkish lire and the South African rand both tumbled against the greenback last month.

On January 30, South Africa increased its interest rates to 5.5 per cent in a surprise move that some experts said was to boost the local currency. Turkey a week earlier had taken the same step.

South African officials, however, have denied that the rate hike was to support the rand.

The rand nevertheless fell to a five-year-low against the dollar last week.

South Africa, India and Brazil suffered considerable weakening of their currencies in June and July of last year.

In August, Brazil’s central bank announced it would boost its currency –  the real –  by injecting some $60 billion worth of cash and insurance to the foreign-exchange market by the end of 2013.

Pressure will now be on US stocks to reverse the negative January trends, which saw the Dow slide 5.3 per cent, the S&P 500 fall 3.6 per cent, and the Nasdaq slide 1.7 per cent.

Both the US and Europe are expected to release PMI data on Sunday, but forecasts indicate that the news will be positive.

Source: Agencies