Emerging stocks plunged 2.75 percent on Wednesday and looked set to erase all their year-to-date gains,while currencies fell heavily as investors fearing a noisy Greek exit from the euro fled for the safety of U.S. dollar assets.
Greek politicians’ failure to form a coalition government has paved the way for fresh elections and focused attention on the consequences of an exit from the euro zone.
MSCI’s main emerging markets index was down 2.75 percent,heading for its biggest one-day loss in six months and up just 0.5 percent in 2012. Oil’s slump to $110 a barrel pushed Russian equities 2.5 percent lower. The commodity and energy-heavy index is now 4.5 percent down for the year.
Chinese shares,which make up a fifth of the emerging market index,closed 1.2 percent down at a one-month low while the rupee,exposed by India’s current account deficit,hit a record low versus the dollar,forcing central bank intervention.
In emerging Europe,the rouble lost 1 percent against the dollar while the Hungarian forint,vulnerable to risk appetite swings,fell 1 percent to the euro. The Turkish lira and South Africa’s rand traded at four- and five-month lows against the dollar.
Emerging sovereign bonds’ yield spreads over U.S. Treasuries widened to 3-1/2-month highs of 389 basis points.