EMERGING MARKETS-Stocks limp to third month of gains, Brazil impeachment looms

08/31/2016 7:17

* MSCI EM index dips at the end of 3rd month of gains * Revived Fed rate hike talk sees rally waver * Currencies steady after falls on Tuesday * Zloty, Rand look to halt falls * Red hot Brazilian assets eye president's impeachment By Marc Jones LONDON, Aug 31 (Reuters) - Emerging market shares and currencies were showing signs of U.S. rate hike nerves on Wednesday, though Brazilian assets held firm - stocks are near their highest in two years - as the country prepared to impeach President Dilma Rousseff. MSCI's main EM stocks index was set for its third straight month of gains, up roughly 2.5 percent and 30 percent since January, though it was with more of a limp than a swagger due to a 0.1 percent dip on the day. Pressure was being applied via revived U.S. rate expectations and a firmer dollar which makes the trillions of dollars of EM government and company debt more costly to service. Uncertainty was also hanging over various countries; notably Brazil where Rousseff was set to be impeached, South Africa where a political power battle was ongoing and Poland as weak data compounded worries about its EU relations. The latter pushed Polish stocks and bonds lower and left the zloty stuck near a four-week low against the euro, though it was on course to snap an eight-day run of falls against the dollar. "Yesterday's data were pretty weak, especially investment which contracted about 4 percent which means that interest rate cut is now not out of the question," said Erste Bank economist Juraj Kotian. "The new MPC (central bank) members were surprisingly hawkish when they came in, but now it seems that they are starting to realize inflation is in negative territory and the growth is not as strong as they had thought." South Africa's rand, which has been the other key mover this month amid pressure on its Finance Minister Pravin Gordhan, was a touch firmer against the dollar as it looked to end a nine-day losing streak. Political corruption worries rumbled on however, as power firm Eskom defended doing business with a company linked to the wealthy Gupta family that is accused of holding undue political sway over President Jacob Zuma. In Brazil the Senate was expected to dismiss Rousseff, finalizing a nine-month impeachment process and confirming the country's shift to the right with the end of 13 years of leftist Workers Party rule. Brazilian stocks have surged almost 60 percent since January and its currency, the real, which has also been one of the world's best performers with a 27 percent jump, inched up to 3.2356 per dollar in pre-Latin American trading. The country is also due to publish GDP figures later expected to show the economy shrank another 0.5 percent quarter-on-quarter and 3.7 percent year-on-year in the second quarter. "So far we have seen few signs that the economy in Brazil has bottomed out," said Standard Life investments' Emerging market economist Alex Wolf. "So even though the market has been extremely early on moving on Brazil that is one where our fundamental view has not really changed," Wolf said, adding Rousseff's successor would also have little time to make meaningful reforms before elections in two years. Most Asian currencies had been steady to firmer in trading, with the South Korean won outperforming due to month-end flows from local exporters. The Chinese yuan held firm too, with investors still wary about possible central bank intervention whenever the currency nears the psychologically important 6.7 per dollar level. 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 896.94 -1.98 -0.22 +12.94 Czech Rep 863.04 +4.21 +0.49 -9.76 Poland 1791.82 -6.41 -0.36 -3.62 Hungary 28119.27 +69.19 +0.25 +17.55 Romania 7026.20 +4.30 +0.06 +0.31 Greece 576.23 +11.86 +2.10 -8.73 Russia 957.75 -0.92 -0.10 +26.51 South Africa 46454.83 -364.32 -0.78 +1.44 Turkey 76341.67 +222.83 +0.29 +6.43 China 3085.48 +10.81 +0.35 -12.82 India 28452.17 +109.16 +0.39 +8.94 Currencies Latest Prev Local Local close currency currency % change % change in 2016 Czech Rep 27.00 27.02 +0.07 -0.02 Poland 4.36 4.36 -0.01 -2.27 Hungary 310.23 309.35 -0.28 +1.42 Romania 4.45 4.45 -0.01 +1.45 Serbia 122.90 123.15 +0.20 -1.16 Russia 65.22 65.35 +0.21 +11.85 Kazakhstan 340.16 338.24 -0.56 +0.10 Ukraine 26.15 25.70 -1.72 -8.41 South Africa 14.46 14.48 +0.11 +6.90 Kenya 101.25 101.20 -0.05 +0.94 Israel 3.78 3.79 +0.23 +2.78 Turkey 2.96 2.96 +0.19 -1.34 China 6.68 6.68 +0.00 -2.78 India 66.96 67.13 +0.26 -1.14 Brazil 3.24 3.24 +0.14 +22.33 Mexico 18.79 18.79 +0.03 -8.62 Debt Index Strip Spd Chg %Rtn Index Sov'gn Debt EMBIG 356 -2 .01 7 70.30 1 All data taken from Reuters at 10:46 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Reporting by Marc Jones; editing by Susan Thomas)

08/31/2016 7:17