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Russian assets hammered by U.S. standoff; Latam FX weakens

* Russian, Ukraine dollarbonds at April 2020 lows * Brazil’s real up 2.1% this week * Argentine inflation rise more than expected * EM stocks saw inflows of $6.7 billion in week to Wed – BofA (Adds details, updates prices) By Susan Mathew and Ambar Warrick Jan 14 (Reuters) – Russian assets slumped further on Friday as talks with the West over Ukraine hit a dead end, while jitters over rising U.S. interest rates dented Latin American currencies, with Colombia’s peso leading losses. Russian stocks hit nine-month lows and the rouble hovered around 76 per dollar, while Russian bonds fell to over 2-1/2-year lows. Ukraine bonds were at April 2020 levels, while the hryvnia hit near nine-month lows of 27.989 as the country was hit by a cyberattack that splashed a warning across government websites to “be afraid and expect the worst.” Russia, which has massed 100,000 troops on its neighbor’s frontier, said it was open to more talks with the United States, while Germany is slated to hold talks with Moscow next week. Still, should the situation not escalate, Russian markets could recover soon given strong fundamentals, analysts say. The rouble will recover “in a matter of days”, and fixed income markets will pick up too, said Alexander Kudrin, chief strategist at investment manager Aton. Elena Lovén, senior portfolio manager, EM equities, at Swedbank Robur, said Russian markets stand to benefit from a global rotation to value from growth sectors, given that they are almost three-thirds geared to value through commodity companies. In Latin America, Colombia’s peso sank 1%, the most among its peers, as it retreated from a strong series of gains. Comments from U.S. Federal Reserve officials opened doors to speculation about four interest rate hikes this year as opposed to the three that were priced in, rattling broader emerging markets. Brazil’s real rose 0.1% as data showed a surprise rise in retail sales in November. Still, the currency was the best performer among its regional peers this week, up 2.1% in its best week in nearly five months. But a fall in China’s imports of meat, copper and iron ore – significant export items for Brazil – dampened sentiment. In Argentina, data overnight showed inflation rose back up to 3.8% in December, above forecasts and to its highest level since last April. This adds pressure on the central bank, which raised the key interest rate to 40% recently. BofA’s weekly note said emerging markets led the largest global tightening wave since 2011 with 49 global rate hikes versus seven cuts over the last six months. Emerging market stocks saw inflows of $6.7 billion in the week to Wednesday, while bonds had the largest outflows in three weeks at $400 million, BofA said in its weekly flow tracking note. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1256.16 -0.57 MSCI LatAm 2205.15 0.17 Brazil Bovespa 106502.47 0.92 Mexico IPC 53548.64 -0.71 Chile IPSA 4486.37 -0.58 Argentina MerVal 85152.37 -0.256 Colombia COLCAP 1458.43 -0.56 Currencies Latest Daily % change Brazil real 5.5210 0.12 Mexico peso 20.3170 0.08 Chile peso 818.93 -0.40 Colombia peso 4003.26 -1.00 Peru sol 3.869 0.23 Argentina peso 103.8400 -0.07 (interbank) (Reporting by Susan Mathew in Bengaluru; editing by Jonathan Oatis)


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