Emerging market sell-off spills over to Europe, U.S.

Fri Jan 24, 2014 7:43am EST
 
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By Francesco Canepa

LONDON (Reuters) - A global flight from emerging market assets gathered pace on Friday, sending the Turkish lira to a record low and setting global shares on course for their worst week this year.

European shares fell, especially in firms exposed to emerging markets, and a sell-off on Wall Street was poised to extend into a second day as investors worried about the impact of slower growth in China, U.S. monetary policy and political problems in Turkey, Argentina and Ukraine.

The sell-off raised the prospect of a repeat of moves last June when developing country stocks fell almost 18 percent and hit global shares. This came after the U.S. Federal Reserve signaled its intention to scale back the bond-buying stimulus that had led investors to chase higher returns in emerging market assets.

"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."

European shares tracked Asian stocks lower. Spain's IBEX .IBEX index, highly exposed to Latin America, lagged other regional bourses, falling nearly 3 percent .IBEX.

The Turkish lira hit a new record low of 2.33 to the dollar, even after the central bank spent at least $2 billion trying to prop it up on Thursday.

Turkey's new dollar bond, sold only on Wednesday, fell below its launch price. The cost of insuring against a Turkish default rose to an 18-month high and Ukraine's debt insurance costs hit their highest since Kiev agreed a rescue deal with Russia in December.   Continued...

 
Pedestrians walk past an electronic board showing various stock prices, which are reflected in a polished stone surface, outside a brokerage in Tokyo January 24, 2014. REUTERS/Yuya Shino