(MENAFN- Gulf Times)
Emerging market stocks fell 1.4% to one-month lows yesterday and were set for their worst weekly performance since mid-December as tension between North Korea and the United States ratcheted up.
Stock markets across the globe have been hammered after North Korea threatened to fire missiles over Japan to land near the US Pacific territory of Guam and US President Donald Trump said such a move would prompt 'an event the likes of which nobody's seen before. MSCI's benchmark emerging markets index fell 1.4% and is set to end the week down around 2.4%. The average yield spread of emerging market sovereign bonds over US Treasuries was 311 basis points (bps), a one-month high, up 11 bps this week for the biggest weekly blowout since Trump's election win on November 4 2016.
'There has been a sizeable reaction today. It looks like volatility is being stirred from very low levels, said Manik Narain, emerging FX strategist at UBS.
But he added it was still early to call it a 'regime change for emerging markets.
'Some of the moves are being exacerbated by fairly low summer trading volumes, and after a very strong run some of this is also an excuse to take risk off the table and reassess. Unsurprisingly, South Korean assets were among the worst hit.
Five-year credit default swaps were up 5 basis points (bps) from Thursday's close to 69 bps, according to IHS Markit, the highest since February 2016.
South Korean stocks are down 1.7% to 2 1/2-month lows and down over 3% for the week, their worst since June 2016.
The tech sub-index lost the most ground, falling almost 3%. Cho Byung-hyun, a securities analyst at Yuanta Securities in Seoul, said the tech selling was caused by foreigners seeing the events as a 'good chance to take profits. Korea's tech-sub index had risen 40% this year by end-July.
Chinese mainland stocks fell 1.8%, their biggest daily slide since December.
Trump has pressed China, which is North Korea's most important ally and trading partner, to do more to rein in Pyongyang.
Hong Kong shares fell 2% and are set to end the week down 2.4%. The market was also dragged lower by a 4% fall in Tencent Holdings after reports it is being investigated by a Chinese cyber authority.
On currencies, South Korea's won slid to one-month low and China's yuan fell 0.3% against the dollar, heading for its steepest one-day drop in six months.
Elsewhere, South African stocks fell 1.2% to end a seven-week winning streak.
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