Emerging markets take brunt of Fed tapering fears
AP and AFPLONDON/HONG KONG--Shares around the world, particularly those in emerging economies, fell Tuesday as investors braced for the phasing out of a U.S. central bank stimulus program that has shored up markets for the past few years.
August 21, 2013, 12:01 am TWN
Emerging markets have been hit by expectations that the Fed will reduce the amount of financial assets it buys in the markets — currently US$85 billion a month — amid signs of improvement in the U.S. economy. The stimulus was intended to spur borrowing and investment through easy access to liquidity. Many investors used the cheap money to buy stocks, particularly in fast-growing developing economies.
Evan Lucas, market strategist at IG in Melbourne, told Dow Jones Newswires: “There is no reason for Treasury yields to be this high. Inflation is near zero, official rates are not expected to be changed until 2015 and the underlying credit market is still shaky from uneven economic data.”
Financial assets in emerging economies weren't the only ones taking a hit on the expectation that the Fed will begin tapering its stimulus next month. U.S. stocks have recorded a four-day losing streak for the first time in 2013 as the country's borrowing rates in the markets have edged up to their highest levels since 2011. Admittedly, trading volumes are modest amid a traditional summer lull.
The performance of U.S. stocks has weighed on European markets even though there have been signs of an economic uptick across the continent. Last week, figures showed that the recession across the economy of the 17 European Union countries that use the euro ended in the second quarter.
In Europe, the FTSE 100 index of leading British shares was down 0.7 percent at 6,419 while Germany's DAX fell 1.2 percent to 8,265. The CAC-40 in France underperformed its counterparts for the second day running, and was trading 1.6 percent lower at 4,018.
Wall Street was poised for a steady opening, with Dow futures down 0.2 percent and the broader S&P 500 futures 0.1 percent lower.
The Fed will likely remain the focus of attention in markets over the rest of the week, especially on Wednesday, when the minutes to the Fed's July policy meeting are published. Investors will be looking for any hints of when the bank might begin cutting back on its stimulus.
Meanwhile in Asia, markets fell Tuesday following another weak lead from Wall Street.