EMERGING MARKETS-Nuclear blast hits stocks, Poland waits on rating review

09/09/2016 5:30

* MSCI EM stocks index falls 1 pct, biggest fall in 3 weeks * Turkish markets sag after below forecast GDP * Downgrade threatened Poland awaiting rating review By Marc Jones LONDON, Sept 9 (Reuters) - Emerging market stocks had a bumpy landing on Friday after an otherwise strong weak, as a nuclear test by North Korea rattled Asia and the ECB dashed eastern Europe's hopes of another quick lift from its stimulus. Poland and Turkey were high on investors' agenda as Warsaw waited on a crucial credit rating review from Moody's later and Ankara - also on a downgrade warning - reported sub-forecast second-quarter GDP data. The Turkish economy grew 3.1 percent year-on-year, below a poll forecast of a 3.4 percent expansion, and first-quarter growth was revised down to 4.7 percent from an earlier 4.8 percent. That helped push the lira and Turkish shares down 0.3 percent, with both having already underperformed most of the other big emerging markets this week. MSCI's benchmark EM stocks index, which spans 27 countries, was also struggling. It was down 1 percent and on course for its worst day in three weeks, although it was still set to end the week almost 2 percent better off. "We had the Turkish GDP data which was a bit weak although household consumption was holding up and I wouldn't characterize it as a big miss," said TD Securities senior emerging markets strategist Paul Fage. Most of the day's damage to EM stocks was done in Asia as North Korea conducted its fifth nuclear test, which set off a blast more powerful than the bomb dropped on Hiroshima. It also said it had mastered the ability to mount a warhead on a ballistic missile. South Korea's shares tumbled 1.25 percent and the won, which is the best-performing emerging Asia currency this year, fell despite the country's central bank keeping interest rates steady. Indian, Taiwanese, Philippine, Indonesian and Russian stock markets dropped between 0.6 percent and 1.5 percent. China's consumer price inflation slowed to its weakest pace in almost a year in August, pulled down by abating food costs, data from Beijing had showed, although an encouraging moderation in producer price deflation added to evidence of a steadying economy. In European trading the focus was squarely on Polish markets ahead of Moody's review of the country's A2 credit rating. It has the highest grade of all the main agencies but put Warsaw on a downgrade warning in May. It has since voiced concerns that a splurge in social spending and plans to undo a rise in the retirement age could see it breach the EU's 3 percent deficit rule. It may have been relieved however to see plans for banks to refund Swiss franc mortgage holders were scaled down last month. Polish stocks were the regional underperformers as they have been for the most of the last six months. They fell 0.7 percent on the day and are now down almost 11 percent since March. However the zloty was flat and ING's chief EMEA FX and interest rate strategist Petr Krpata said FX forwards markets pointed to no obvious drop over the next month. "Basically the market doesn't expect a downgrade," he said. For GRAPHIC on emerging market FX performance 2016, see http://link.reuters.com/jus35t For GRAPHIC on MSCI emerging index performance 2016, see http://link.reuters.com/weh36s For GRAPHIC on MSCI emerging Europe performance 2016, see http://link.reuters.com/jun28s For GRAPHIC on MSCI frontier index performance 2016, see http://link.reuters.com/zyh97s For CENTRAL EUROPE market report, see For TURKISH market report, see For RUSSIAN market report, see ) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg on year Morgan Stanley Emrg Mkt Indx 917.00 -10.29 -1.11 +15.47 Czech Rep 885.13 +0.33 +0.04 -7.45 Poland 1780.01 -13.47 -0.75 -4.26 Hungary 28604.89 +99.36 +0.35 +19.58 Romania 7039.77 -21.07 -0.30 +0.51 Greece 566.30 -0.28 -0.05 -10.30 Russia 997.87 -15.24 -1.50 +31.81 South Africa 46738.38 +149.67 +0.32 +2.05 Turkey 77609.98 -233.51 -0.30 +8.20 China 3078.85 -17.10 -0.55 -13.01 India 28893.04 -152.24 -0.52 +10.63 (Editing by Hugh Lawson)

09/09/2016 5:30