In a move that could see money moving out of emerging markets and back to safe havens, American aircraft on Friday struck targets in Iraq after US President Barack Obama’s decision to authorise air strikes against militants fighting the government there. Apprehensions that investors would take risk off the table in emerging economies saw US treasuries rallying while European equities skidded and Asian stocks came off to a seven-week low. The US 10-year yield fell 2 basis points to 2.39% and touched 2.35%, the lowest since June 2013. The advance in Germany’s 10-year bonds left yields lower for a fifth week, the longest run since June 2012. Brent crude oil was trading 1% higher at $106 a barrel in the futures market while the yen advanced against all but two of its 16 major peers.
Indian markets too were somewhat spooked, with the Sensex losing 1.02% or 259.87 points to close at 25,329.14 points, losing ground for third straight session.
The rupee hit 61.74 to the dollar in intra-day trade, the weakest since March 5, but recovered a bit thanks to exporters selling dollars to take advantage of a weaker currency and closed 0.1% higher at 61.1450 to the dollar, according to Bloomberg data.
The MSCI Asia Pacific Index fell 1.4% to 144.09 at 8 pm in Hong Kong, taking its loss this week to 2.5%, Bloomberg reported, adding that European stocks posted the first back-to-back weekly losses since March, sending equity benchmark gauges in France and Germany down more than 10% from their highs.
Experts say markets could see further selling. “While markets fell on Friday, the selling was not heavy. Before any recovery takes place, we could see a sharp correction in the markets and would remain wary of buying into this fall,” said Andrew Holland, CEO, Ambit Investment Advisory. In the week, foreign institutional investors have bought $431 million worth of shares, taking their year-to-date tally to $12.10 billion.
Apart from the Iraq air strikes, tensions elsewhere added to the worries. Rocket attacks marked the end of a ceasefire between Israel and Hamas, while RIA Novosti reported that Russia offered to mediate between the government in Ukraine and the separatists that it is battling. More than $1.8 trillion has been erased from the value of equities worldwide in the past two weeks.