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Emerging market sell-off rattles FTSE

by Chris Marshall on Jan 24, 2014 at 11:13

Emerging market sell-off rattles FTSE

European markets skidded further into the red on Friday morning, continuing Thursday’s sell-off as fears over emerging markets rattled investors around the world.

A 1% loss on Britain’s FTSE 100 to 6,700 came after yesterday’s 0.8% decline. That means the blue chip index is now down since the start of the year.

Emerging markets focused stocks were hardest hit, with Aberdeen Asset Management (ADN.L) falling 5.7% to 397p and FTSE 250 listed competitor Ashmore (ASHM.L) down 4.4% to 329p. SABMiller (SAB.L), the brewer that makes much of its money in Latin America, fell 2.5% to £29.04.

The declines come after losses on Asian indices overnight. Japan’s Nikkei dropped some 2%, although Chinese shares were more resilient, managing gains.

The real moves came in emerging market currency markets. The Argentine peso suffered its biggest one-day fall in more than a decade yesterday, falling as much as 15%.

Investors were left scratching their heads over the actual impetus for yesterday’s declines. The peso’s fall was attributed to the end of central bank support for the currency, while wider emerging market angst was probably started by weak Chinese factory data published yesterday. Growing political risks in Ukraine, Thailand and Turkey have also unnerved investors.

Whatever the short term trigger, sentiment towards emerging markets has been generally weak after a three year bear market. Investors are worried about slowing growth, a lack of reforms and the impact of the withdrawal of US monetary stimulus - with the US Federal Reserve potentially set to reduce the scale of its asset purchases again next week. Elections in many major emerging economies this year complicate reform efforts and tough policy choices.

Lars Christensen, chief analyst at Danske Bank said it was hard to predict when the emerging markets sell-off would end. ‘As long as the Chinese slowdown continues it might be hard to see any material turn-around in Emerging Market sentiment,’ he said.

Martin Gilbert, Aberdeen Asset Management's chief executive, shrugged off the impact of short term emerging markets weakness in  comments to Citywire earlier this week. 'Am I concerned about our exposure to emerging markets? No, we are long-term investors on behalf of our clients and also as a business our strategy is focused on the next five, 10, 20 years not short-term trends.'

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