Emerging markets: growth concerns fuel risk aversion

Renewed concerns about a global economic slowdown knocked emerging markets assets down on Friday, driving stocks lower for the sixth consecutive session and sending a key gauge of risk aversion to levels not seen in more than three years.
Emerging equity markets slid 2 percent on the Morgan Stanley's MSCI index after a report showed the US unemployment rate soared to a near five-year high of 6.1 percent in August.
The report increased fears that a US-led global economic slowdown might hurt exports from emerging countries. The MSCI stock index for Latin America has posted losses of about 8.5 percent during the past six sessions, as growth concerns continue to weigh on oil and metal prices, clouding the outlook for commodity-exporting countries.
Uncertainties about the resilience of emerging economies to the global slowdown reduced investors appetite for risk. Emerging debt spreads over comparable US Treasuries, an important measure of risk aversion, widened 2 basis points to 323 points according to J.P. Morgan's EMBI+ index. Earlier in the day, spreads had widened to at least 330 basis points, back to levels of June 2005.
"The move in asset prices suggests that the global financial markets in general are going through another bout of deleveraging and risk reduction," Kasper Bartholdy, head of economics and fixed-income strategy for emerging markets at Credit Sues, told a conference call with investors on Friday.
"Alongside that, I think there is clearly a general downshift down the way in the consensus expectations for growth in emerging markets countries, and faltering support for the view that EM countries can continue to decouple from growth" in the leading developed economies, he added.
As the price of US crude oil futures fell for the sixth consecutive session, investors became more averse to the debt issued by countries which rely mainly on oil exports as their main source of revenue, such as Ecuador and Venezuela. Ecuador's risk spreads widened 19 basis points to 768 basis points on the EMBI+, the widest spread level among the 15 countries tracked by the benchmark indicator, as investors worry about both the ability and the willingness of President Rafael Correa to service the country's debt in the coming year.