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Gulf leads stock losses; euro zone reassures

Emerging Europe helped by positive euro zone data.

February 21, 2011 2:33 by

Emerging equities stalled on Monday and most Gulf stock markets extended recent losses amid worries about the potential fallout from Libya’s deadly clashes but strong euro zone economic data provided some reassurance.

Emerging Europe however got a boost from a healthy reading for private sector activity and data showing German business sentiment improved for the ninth straight month in February.

Broader emerging stocks  eased slightly, taking a cue from European markets which were undermined by Libya-exposed stocks such as oil firms ENI and OMV . However, the firms’ debt insurance costs did not show a significant rise.

Emerging stocks had gained over 2 percent last week — the best weekly performance in seven weeks.

Eastern European stocks slipped 0.5 percent  though Prague, a big beneficiary of Germany’s recovery, rose 0.7 percent . Turkish stocks fell almost 1 percent.

“It’s a quiet day with the U.S. closed for a holiday and there’s surprisingly little impact from the unrest in the Middle East. People are talking about events in Bahrain and Libya but it’s not really having an impact on investor sentiment,” said Nigel Rendell, emerging markets strategist at RBC Capital Markets.

“The strong reading of German business sentiment is positive especially for eastern and central Europe,” he added.

Oil prices rose to a new 2-1/2 year high due to increasing violence in Libya, feeding fears about inflation especially in emerging markets, and restraining equity gains. But Russia reaped some of the immediate gains, its commodity-dominated bourse rising 0.8 percent .

South African stocks  also benefited from a jump in safe-haven gold to the highest since early January.

Investors were more bearish on the Middle East, where the small markets including Qatar and UAE extended losses.

Qatar  fell 0.8 percent, having lost 8 percent since mid-January. Dubai’s main index  fell 1.3 percent to a September 2 low and Abu Dhabi lost 0.5 percent

“There aren’t worries of a domino effect into Qatar, the UAE, and Oman. This is more of an overall investor regional confidence issue,” said Akram Annous, MENA strategist at Al Mal Capital in Dubai.

“There is now a perception of elevated risk in the Gulf, and that is not going to disappear overnight. Markets will continue to struggle with discounting this element.”

Bahrain’s most-traded 2014 Islamic bond fell to a fresh 11-month low while Bahrain’s dinar currency weakened further in the forwards market  though it remained off recent seven-month lows.

Debt insurance costs for Middle Eastern sovereigns continued to rise, with Bahrain 5-year credit default swaps 8 basis points higher at a new 18-month high of 305 bps. Dubai rose 9 bps to 440 bps while Israel also inched higher to a new 19-month high.


Israel’s central bank was also the focus of attention as it is expected to raise rates by a quarter point on Monday for the second straight month to 2.5 percent, with the recent strong growth number prompting some analysts to predict a 50 bps rise.

The shekel was near a one-month high , unfazed by policymakers’ resolve to curb the currency’s gains.

Emerging European currencies were mixed, with the rouble hitting a 9-month high against the dollar  but the Turkish lira shed almost 0.4 percent .

The rouble was receiving support from the oil prices and also from the prospect of a long-delayed sovereign rouble Eurobond for up to $3 billion this week.

However, the Polish zloty and Hungarian forint fell around 0.4 percent versus the euro .

The zloty took a hit after central bank Governor Marek Belka said the January rate rise should not be followed by a “cascade” of rate hikes.

Poland started tightening policy last month, raising the main rate to 3.75 percent from a record low. Markets have been betting the Monetary Policy Council will follow that with another rate hike in March.

In Hungary the central bank is expected to leave interest rates on hold after tightening policy three times.

“We do not expect to see a significant impact on the currency following the decision and at a margin we still favour forint longs,”,BNP Paribas analysts said, adding that the pause should end the recent underperformance of the long end of the Hungarian bond curve.

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