LONDON – Emerging stocks dropped 1 percent to 10-day lows on Monday, as weak Chinese inflation data reversed recent gains fuelled by optimism over the euro zone, while Egyptian stocks slid after the country’s new president ordered parliament to reconvene.
Chinese stocks fell 2.4 percent to a six-month low after data showing Chinese consumer and producer prices falling more than expected in June, signalling falling demand for goods from the world’s second-biggest economy.
The prospect of a slowdown in China and the euro zone debt crisis have been two of the main factors eating into emerging market performance in the past two years.
Euro zone finance chiefs will try to flesh out plans to reinforce the single currency in talks in Brussels on Monday.
“It’s not super-surprising that Chinese inflation is coming in a little bit lower than expected. It’s showing there’s some underlying deceleration of demand in the economy,” said Luis Costa, emerging markets strategist at Citi, adding:
“Bad economic news out of western Europe hits central Europe right in the face.”
Benchmark emerging equities fell 1 percent from Friday’s close and are down more than 2 percent from six-week highs set last week.
Emerging European currencies were mostly weaker though the Romanian leu held above record lows set on Friday after Romania’s government suspended President Traian Basescu on Friday, ruling he had overstepped his powers.
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The cost of insuring Romania’s debt against default rose 22 basis points to 445 bps in the five-year credit default swap market, according to Markit.
Egyptian stocks fell as much as 5.5 percent after new president Mohamed Mursi on Sunday ordered a parliament dominated by his Islamist party to reconvene, challenging the authority of the generals who had dissolved the assembly in line with a court order.
The Israeli shekel hit three-year lows against the dollar, with minutes of the central bank’s latest meeting, at which it cut rates, expressing concern about Israel’s growth rate.
