Emerging markets wobble as geopolitics renew bid for dollar

Thursday, 20 April 2017 00:00 - - {{hitsCtrl.values.hits}}

London (Reuters): Emerging market struggled on Wednesday after Britain’s surprise snap election call added to political uncertainties globally, from France’s nail-biting election race to tensions on the Korean peninsular that have dampened risk appetite.

Stocks fell to a one-week low in a second day of losses, while many currencies weakened against a firmer dollar.

MSCI’s emerging equity benchmark index fell 0.3%, dragged down by Asian heavyweight Taiwan falling more than 1% while South Korea’s bourse slipped 0.5%. That offset gains in Turkey, South Africa and emerging Europe.

The dollar’s gains against a basket of currencies and a renewed bid for safe-haven bonds added to pressure on many emerging currencies.

“We have had a period of low volatility so it would be unsurprising if we enter a period of higher volatility - especially as we have European elections and geopolitical risks around the world so we may see emerging market currencies correct from time to time,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

“The emerging market rally can extend further, but it won’t be linear,” he said, noting that the fundamental global growth picture was still benign.

The dollar index traded near three-week lows on Wednesday, dragged down by a resurgent sterling after British Prime Minister Theresa May called for an early general election ahead of Brexit negotiations.

The British currency sailed to more than six-month highs after May said the election would “secure the strong and stable leadership” position needed for talks with the European Union about terms for the looming exit.

The dollar index, which tracks the greenback against a basket of six rival currencies, edged up 0.1% to 99.548, not far from its overnight low of 99.465, its deepest trough since 28 March.

Sterling was steady on the day at $ 1.2845 after rising as high as $ 1.2908 on Tuesday, its highest since early October, as investors scurried to cover short positions.