Emerging markets led a global sell-off in risky assets on Monday as European stocks followed sharp falls in Asia and safe-haven assets such as the yen and gold rallied.
Concerns about China's economic slowdown and its shadow banking sector, coupled with expectations the Federal Reserve would scale back its bond buying further, are piling pressure on emerging markets dependent on external financing.
Political risks in Ukraine, Turkey and Thailand as well as a looming financial crisis in Argentina are compounding the problem of emerging markets in a week when the Fed is expected to cut its monthly bond purchases by another $10 billion.
In Europe, a German media report which cited an OECD study that showed European banks have a combined capital shortfall of about 84 billion euros also hit sentiment.
"Sudden fears about emerging markets and also potential capital shortfalls for some European banks are rattling investors. People have been a bit complacent lately, so it's quite logical to get a correction," said David Thebault, head of quantitative sales trading, at Global Equities.
MSCI world equity index fell 0.6 per cent, its lowest in more than a month, following Asia's decline of 1.6 per cent.
The benchmark emerging stock index 4-1/2 month trough, falling 1.6 per cent on the day. Emerging stocks are the worst performing asset so far this year, with year-to-date losses of 5.2 per cent.
U.S. stock futures are pointing to a firmer open, after the S&P 500 index posted its worst week since June 2012 last week.
European stocks are down 0.6 per cent. Banking stocks lost more than half a percent.
"There's a sea of red in Asia and that spills over into Europe and should give some support to safe-haven assets," said Nick Stamenkovic, bond strategist at RIA Capital Markets.
The yen hit a seven-week high of 101.77 per dollar while gold also rose to a two-month high above $1,278 an ounce.
The 10-year U.S. Treasury yield hit a new two-month low of 2.7333 per cent. Bund futures were down 6 ticks. The dollar was trading slightly weaker against a basket of major currencies.
Copyright: Thomson Reuters 2014
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