Malaysia Airlines won’t ground B777 fleet, CEO says

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Despite being hit by the worst disaster in its forty one-year history when a Boeing 777-200ER jet en route to Beijing disappeared from radar on Saturday, Malaysia Airlines said it won’t ground the remaining 14-strong B777 fleet.

Replying to questions from CNBC at a Sunday press conference, MAS chief executive Ahmad Jauhari Yahya said he remained “very confident” of the “despatch ability and reliability” of the Boeing 777-200 fleet.

Jauhari echoed earlier remarks from Azharuddin Abdul Rahman, Malaysia’s Director General of Civil Aviation, who said his department hasn’t issued any order to MAS to stop flying the jets despite the incident. The search for the missing aircraft, which disappeared from radar in the small hours of Saturday morning, entered its second day Sunday and now involves at least six nations.

Read more: Amid anxiety, search continues for missing Malaysia flight

Aviation experts told CNBC that because MAS had not yet found any debris – or the black box flight recorder – they could not reconstruct the plane, determine exactly went wrong and establish a reasonable case to ground the B777 fleet.

“If you get a suspicion it’s a design flaw or a component failure and could cause a failure of the same component in the same type of plane” then an airline may decide to stop flying the affected model, said Andrew Herdman, director general of Association of Asia Pacific Airlines (AAPA).

Boeing, the airline’s manufacturer, has sent a technical team to Malaysia to help investigating authorities piece together – figuratively and quite literally – what befell flight MH370.

Read more at NBCNews.com: Stolen passports trigger terror concerns

Herdman said the structural safety and integrity of the Boeing wide-body jet was solid: “There’s no suspicion about the type itself,” he said. “The 777 is the workhorse of the fleet. They’re operating across the world, it has an exemplary safety record and is a reliable safe aircraft. We’re looking at something really unique here, something highly unusual affecting this particular flight.”

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Could Draghi’s upbeat tone send euro flying higher?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The euro is set to power higher, even after jumping to a two-month high against the US dollar on Thursday following upbeat comments from European Central Bank (ECB) President Mario Draghi, analysts told CNBC.

The central bank kept rates unchanged at 0.25 percent at Thursday`s policy meeting. In the post-meeting press conference the ECB President dampened expectations that a shift in monetary policy was on the cards.

“The ongoing recovery is expected to proceed, albeit it at a slow pace,” Draghi told journalists in Frankfurt, Germany. He reiterated that the euro zone was facing a “prolonged period of low inflation,” but declined comparisons with Japan, which suffered deflation during the 1990s.

“We believe the situation is different,” Draghi added, saying that the ECB was different from the Bank of Japan in that it had taken “early decisive action” to tackle economic stagnation.

His comments sent the common currency roughly 1 percent higher to USD 1.3873, a level not seen since December, before it fell back slightly. The euro also gained sharply against the yen, rising 1.6 percent to touch a high of 142.910.

“I do see the euro moving higher, we had quite a bit of technical damage done right after the ECB press conference, as we broke through the USD 1.38 barrier,” Michael Woolfolk, senior FX strategist at BNY Mellon, told CNBC Asia`s Squawk Box on Friday.

“The market is now probing into what the new ceiling is going to be for the new trading range, it wouldn`t surprise me to see the euro testing the USD 1.40 level in the next week or two,” he added.

The euro gained 2.3 percent against the dollar in February, as worries that the ECB could move to loosen monetary policy to address inflation concerns have proved unfounded.

Draghi also explained at the press conference how the bank`s gross domestic product (GDP) growth forecasts had been revised up to 1.2 percent for 2014, a tenth of a percent higher than the December forecast.

Meanwhile, the bank`s inflation forecast for 2014 was also revised down a tenth of a percent from December to 1 percent. Although inflation targets were lowered, traders were still encouraged that the bank`s long-term targets would be met and deflation would be avoided.

Kathleen Brooks, research director for UK and E.M.E.A. at Forex.com, said markets had been factoring in the risk that Draghi could talk down the euro at the meeting, much like he did back in February 2013, when he triggered an 800 pip decline over the next six weeks.

“Instead the upward revision to the growth and Q4 2016 inflation outlooks has triggered a rally in the euro, which is now at its highest level of 2014 so far,” she said.

Draghi said inflation would reach 1.7 percent by the end of 2016, within sight of the bank`s 2 percent target.

“A weekly close above USD 1.3830 – a critical area of resistance…would be an extremely bullish development that could trigger another leg higher for this pair,” she said, adding that a move to USD 1.40 would be a key psychological level.

However, according to Tom Williams, sales trader at Go Markets, even though Draghi`s inflation forecast gave traders an immediate boost, he said there was a risk the euro will fall in the long term.

“The euro is unlikely to remain supported unless data can prove that the block can grow in line with forecasts and levels of unemployment will not spiral out of control,” he added.

Jeffrey Halley, senior manager of FX Trading at Saxo Capital Markets, added that although Friday`s US non-farm payrolls data could prompt the euro to pop up to USD 1.40, the surge would be short-lived.

“I expect the euro will head back down below USD 1.38 fairly quickly and we`d see US Treasurys get sold as well in anticipation of further tightening from the Fed [Federal Reserve] down the line,” added Halley.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

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Why Apple will struggle to wow investors this year

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With Apple`s story over the next year likely to center on iPhones and new products designed to make the smartphone more useful, the Cupertino-based company may struggle to impress investors.

“As iPhone users, we are very excited about some products in the pipeline, like innovation in payments, geo-location, wearable devices and converged media with the Apple TV improvements,” Barclays analysts led by Ben Reitzes wrote in a report on Thursday. “However, nothing we anticipate seems as revolutionary as the iPhone or iPad – not even a potential TV with motion sensors possibly coming next year.”

Earlier this week, the tech giant unveiled CarPlay, a new platform that will enable drivers to integrate their iPhone and car entertainment system.

While this is a positive development, analysts don`t expect such products to re-accelerate growth in the iPhone category to sustainable double-digit levels. Apple reported sales of 51 million iPhones during the last quarter of 2013, up 7 percent from the same period in 2012.

“Some of Apple`s newer launches, such as CarPlay, are interesting, but they are essentially just new applications for the existing iPhone. The same is true of `wearables` such as the long-awaited Apple watch. These are initiatives that Apple should follow, of course, but none are going to make a huge impact on sales,” said Charles Sizemore, chief investment advisor of investment advisor Sizemore Capital Management.

Tough quarter ahead?

Barclays says with no major product launches until the second-half, the June quarter could be a tough one for Apple.

“We believe the smartphone market could start to shift away from Apple in the very near term given new product launches from competitors and a lack of new products until the second half of 2014,” the bank said.

Apple is expected to unveil the iPhone 6 in the second half of this year, with features such as a larger screen, more durable glass and a faster processor.

However, the incremental improvements to its products are unlikely to be enough to reenergize its customer base the same way the original iPhone did in 2007, the bank said. Additionally, the company`s margins may come under pressure as it adds advanced new features to new iPhones at similar price point.

“It seems very hard for hardware vendors to sustain competitive advantages for any meaningful length of time,” the bank said.

Since refreshing its iPhone and tablet lines in the second half of 2012, Apple has experienced a contraction in its market share for both – a continued worry for investors.

Apple`s smartphone market share, for example, stood at 18 percent in the fourth quarter of 2013, down from 21 percent a year earlier.

Barclays downgraded its recommendation on Apple to neutral from overweight towards the end of February, with a 12-month price target of USD 570. Apple shares, which are currently trading at USD 530, are down 5.4 percent year-to-date – underperforming the Nasdaq Composite`s 4.2 percent rise.

Sizemore says given how widely owned Apple`s stock is there aren`t enough new buyers to drive the price sharply higher. However, he thinks the stock offers decent value and expects it to outperform the market over the coming year, forecasting gains of 10-15 percent in 2014.

“Expectations are low, and the stock is cheap. The stock trades at a massive discount to the SandP 500, which is ridiculous. At the least it should trade at the market`s price-to-earnings ratio, and I would agree with Carl Icahn that it should trade at a premium,” he said.

That said, Sizemore acknowledges Apple seems to have lost its “wow” factor and is no longer an explosive growth company.

Apple`s relevance in question

The next era of consumer technology favors those with leadership in web services, the bank said, with devices likely to become less important over the next few years.

“If we were to see evidence that payments and/or new content deals were to markedly enhance the web services aspect of the Apple story vs. Google long-term, we may need to reassess this position,” he said.

While Apple`s core strength has been developing universally acclaimed hardware, Google has excelled at delivering internet services such as online maps, email and messaging. But Google appears to be getting better at design, faster than Apple is getting better at web services, according to industry experts.

“We see the best prospects for future revenue in social, web, and the cloud. We believe these services are needed to keep ecosystems ahead of the pack and to attract and retain more users,” he said.

-By CNBC`s Ansuya Harjani. Follow her on Twitter @Ansuya_H

Copyright 2011 cnbc.com

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Contained or contagion: How to play Ukraine

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global markets, which started the week gripped by fears over Ukraine, look likely to end it on a calmer note. And while tensions in Ukraine have ebbed, it’s not time to put the crisis behind, analysts say.

“There’s a remarkable amount of complacency,” Jeffrey Halley, a senior manager for currency trading at Saxo Capital Markets told CNBC Asia’s “Squawk Box” on Friday.

“The crisis seemed to end overnight and the next thing we’re seeing fresh highs in stock markets around the world and emerging market currencies rallying left, right and center and I’m actually quite surprised,” he added.

(Read more: Wall Street sets bar low for Friday’s payrolls report)

The S&P 500, a broad measure of US stocks, hit a record high on Thursday after data showing jobless claims hit a three-month low boosted sentiment ahead of Friday’s key non-farm payrolls report.

Safe-havens such as gold and US Treasurys meanwhile have given up some of the gains made after tensions between the West and Russia over Ukraine flared up at the start of the week as comments from Russia’s President Vladimir Putin quelled fears of an imminent conflict in Ukraine.

Late Thursday, the White House was reported saying that US President Barack Obama held an hour-long call with Russia’s President Valdimir Putin regarding the future of Ukraine.

(Read more: Crimea votes to join Russia, Obama orders sanctions)

David Keeble, head of fixed-income strategy at Credit Agricole said a peaceful resolution to the crisis in Ukraine was not fully factored into financial markets.

Crimea’s parliament on Thursday voted to join Russia, with its Moscow-backed government setting a referendum in 10 days – a move European Union leaders have said would violate international law.

Crimea, which is mostly populated by ethnic Russians, has been at the center of tensions between Ukraine and Russia since the ousting of Ukraine’s pro-Russian president last month after street protests that culminated in bloodshed.

“The next big news and I don’t think it will be the vote in Crimea, is if there is bloodshed in Crimea or disruption of gas supplies,” Keeble said. “I still think there are still five-to-eight basis points of Ukraine-related risk to be priced into Treasury yields.”

(Read more: Every oligarch for himself: Crazy days in Ukraine)

The benchmark 10-year US Treasury yield was trading at 2.74 percent on Friday in Asia, that’s 15 basis points above a one-month low hit on Monday when Ukraine fears gripped global markets.

Laura Fitzsimmons, vice president of futures and options at JPMorgan Investment Bank in Sydney, told CNBC she believed the crisis in Ukraine would be contained.

“Markets are always quite surprising in the way that they can so quickly move on and risk can return. Certainly in this environment, the last few years have shown that,” she said. “At the same time, we here at JP Morgan view the risks from Ukraine as quite contained in terms of global markets, trade.”

— By CNBC.Com’s Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

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Why the world should keep an eye on Ukraine

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The crisis on Ukraine can still send the markets into a tailspin, despite Russia appearing to back away from all-out war and the international wheels of diplomacy whirring into life, analysts and economists have warned.

(Read more: Ukraine fin min: We’re broke but we won’t default)

The country is still on the verge of further violence. While Russia’s President Vladimir Putin appears to have backed down from military action on the Ukrainian borders, there is still unrest in plenty of Ukraine outside the Crimea, and potential for this to spread. International efforts to reach a solution so far have failed to reach a resolution.

Bringing forward Crimea’s referendum on whether to join Russia from March 30th to 16th, after the region’s parliament voted to join Russia, may raise the stakes again.

“It is inconceivable that the international community would consider any vote in the region at present free and fair, given no well planned/managed and timely election campaign, plus the continued presence of armed troops on the streets,” Timothy Ash, head of emerging markets research at Standard Bank, pointed out.

Putin has denied that forces in Crimea are part of the Russian army, and claimed that they are locals wearing shop-bought Russian uniforms.

(Read more: Sanctions? We’ll seize Western assets, warn Russians)

Even without immediate escalation, the events of this week will have countless reverberations.
Ukraine itself, while a much smaller economy than Russia, nonetheless has the potential to send prices for corn, wheat and gas rising.

Russia’s powerful economic and political position in its region means that any crisis which potentially impacts growth will have a broader impact. Economists are already cutting their forecasts for Russian economic growth this year.

“The situation is still highly unpredictable,” economists at ratings agency Fitch warned on Thursday. They reaffirmed the country’s ‘BBB’ credit rating, arguing that events so far did not quite justify a downgrade, but cut forecasts for GDP growth this year from 2 percent to 1.5 percent.

(Read more: Russia’s economy may be headed for a fall)

“If you look at the strategies for most big multinationals, Russia is the key to the Central and Eastern Europe market. If Russia goes wrong here, it will have a global effect,” Richard Martin, managing director, IMA Asia, told CNBC.

“You’ve also got a second big country in the region, Turkey, where things are going wrong politically. Russia is a big part of sales and it will have a negative impact if it goes wrong.”

– By CNBC’s Catherine Boyle. Twitter: @cboylecnbc.

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ECB, BoE leave rates unchanged

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The European Central Bank (ECB) left its benchmark rate unchanged at record low of 0.25 percent on Thursday, in line with analyst expectations.

Earlier in the day, the Bank of England (BoE) also left interest rates at a record low of 0.5 percent and its gilt purchase target unchanged at £375 billion (USD 617 billion), as expected.

Market response to both announcements was muted. The euro continued its rise, while European stocks were broadly unchanged.

Yields on benchmark 10-year UK gilts were relatively unchanged, holding steady at 2.751 percent after trading at a session high of 2.754 percent.

Sterling showed a small spike against the dollar after the news, ticking higher to USD 1.674 before falling back down to USD 1.671.

Follow our live blog: Central banks in focus, Fed’s Plosser on US outlook

Market focus will now turn to ECB President Mario Draghi’s press conference at 1:30 p.m. GMT. The ECB is also expected to publish forecasts as far ahead as 2016 for the first time.

Speaking after the rate announcement, Daniel Lacalle of Ecofin forecast the euro would continue to strengthen.

“I think it (holding rates steady) gives a bit more time for the ECB to look at how the economy recovery pans out, especially into the very important second quarter of 2014,” he told CNBC.

BoE acts as expected

All 64 economists polled by Reuters this week did not expect any change of monetary policy by the BoE, with markets fully anticipating the decision.

The central bank also said that it agreed to start reinvesting cashflow from the UK sovereign bonds it had purchased with its quantitative easing program. It said it would reinvest the £8.1 billion (USD 13.5 billion) of cash flows associated with the redemption of gilts maturing on March 10. Analysts said that this extra announcement was the reason for the move higher in sterling and expected this to provide support for the currency heading into the end of the week.

“The decision to leave rates unchanged came as no surprise – while unemployment is falling and there are some signs of growth broadening into investment, we are yet to see an improvement in real wages,” said Andrew Goodwin, a senior economic adviser at the economic forecaster EY ITEM Club.

“The UK economy remains fragile, and raising rates prematurely could put a stick in the spokes of the recovery. Meanwhile, inflation remains in check, leaving the MPC (Monetary Policy Committee) room to focus on supporting growth.”

Howard Archer, an economist at IHS, believes that the central bank clearly wants to nurture the U.K. recovery and not risk “choking it off” by raising rates too early or too fast.

Thursday’s rate announcement marked five years to the week since the central bank cut its benchmark rate to record lows of 0.5 percent in a bid to increase lending and stimulate the economy. This measure is a benchmark for mortgages and savers all over the U.K. and was originally tied to the unemployment rate. U.K. savers have suffered during the past few years with deposits receiving a negative yield when inflation is factored in.

Read More: Five years on: what 0.5% rate has meant for the UK

However, improving economic data in the UK has increased expectations that the Bank of England would look to raise this rate. An improving employment figure also meant the Bank made changes in the way it gives guidance for when monetary policy could be changed.

Governor Mark Carney unveiled the “next phase” of this forward guidance in February. In a surprise to some analysts, Carney’s “second phase” of forward guidance did not link a rate hike to any specific economic indicator.

Read More: ‘Too much focus’ on rate hike: BoE’s Broadbent

Instead, he said the bank’s MPC would be “monitoring a broad range of indicators” including labor market participation, average hours worked, productivity, and wages. The bank will also publish forecasts of 18 more economic indicators for the first time.

Economists polled by Reuters this week now believe there is a 30 percent chance that rates could move higher this year, with an 80 percent chance they could move by the end of 2015. The same economists also gave a mixed picture on Carney’s new guidance. A quarter said that his new policy offered a more precise picture, whereas 22 percent said that it offered less clarity than when it was tied to the unemployment rate.

Goodwin said that he expected the Bank to remain cautious and only raise interest rates once the resilience of this nascent recovery was assured. His prediction is for this to occur in the third quarter of next year. Archer’s view is for rates to move higher in the second quarter of 2015.

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Klitschko: Putin scared of what’s happening in Ukraine

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ukrainian politician and potential presidential candidate Vitali Klitschko told CNBC that Russian President Vladimir Putin was frightened of how events were unfolding in Ukraine.

Tensions between Ukraine and Russia have heightened in recent weeks and on Sunday Russia carried out a bloodless invasion of Ukrainian peninsula Crimea.

The invasion followed a volatile few months for the country, as large-scale anti-government protests over Ukraine’s role in Europe turned violent earlier this year, leading pro-Russia President Viktor Yanukovych to be ousted from power.

“He [Putin] is scared of what is happening because the [Ukrainian] people don’t want to…live with this corruption, live without human rights and that is why the people want the changes,” he said.

In an exclusive interview with CNBC in Ukraine’s capital Kiev on Wednesday, Klitschko told CNBC that, if elected, he would aim to rid Ukraine of corruption and help the country move towards further integration with Europe. He noted the country was suffering not only from a political crisis, but an economic one too.

“I am more than sure that everybody [wants] to live in a European country with European standards of [living],” he added.

Klitschko, who is leader of the leader of the Ukrainian Democratic Alliance for Reform and a Member of the Ukrainian Parliament, said he hoped that recent political events in Ukraine set an example for Russia, and disputed Putin`s description of the new Ukrainian government as “illegitimate.”

“If Ukraine [is] very successful in [a] democratic movement, it’s a good example for Russia. Without Ukraine, Russia can never be an empire, and that’s why I think Russia tried to stop the presidential elections,” he said.

The Ukrainian politician, who has had a successful boxing career for 16 years, said his vision for Ukraine had been nurtured by his time spent in western countries.

“I spent a lot of time in Europe. I spent a lot of time in United States, I know what is modern standards of life… and always if I return to my home country, I ask my country why very simple things what works everywhere else in the world doesn`t work in Ukraine?” he said.

Klitschko said, if elected, he would aim to tackle Ukraine`s prolific corruption problem by changing the situation from the inside.

“Ukraine is famous as [the] most corrupt country in the European Union, and politics in Ukraine is business… Just one way to change situation, [is to] go into politics and try to change from inside,” he said.

“I know it`s a very difficult task…but Poland is doing it. Poland [has had] success, [along with the] Czech [Republic], Slovak Republic, Hungary, Georgia was also very successful, and we Ukraine have much more potential,” he added.

Klitschko acknowledged that Ukraine would have to endure tough reforms and austerity in order to get up to the standards of other European countries.

“It`s very important to explain it will be better for the country…I am more than sure Ukraine will accept that… [and] can wait… but they can`t live with this current situation,” he added.

He was confident he would have the support of Europe, despite Germany`s recent more diplomatic approach to Russian aggression, given that sanctions on Russia would not be in their best interest.

“Everybody wants to see Ukraine – one of the largest countries in Europe – stable with a stable economic situation, because instability in Ukraine can bring instability in the whole region,” he said.

Ukraine now has a temporary president, Olexander Turchynov, while Arseniy Yatsenyuk was confirmed as the interim prime minister.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

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Are emerging markets really suffering from outflows?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Headlines in the recent months claiming that investors have been rushing for the exits in emerging markets are a great exaggeration, according to an expert.

“There’s a view that investors are all bearish and getting out of emerging markets. That’s primarily based on the [fund-tracking firm] EPFR data,” Alberto Ades, co-head global economics and head of GEMs fixed income strategy at Bank of America Merrill Lynch said at a press briefing on Wednesday.

“It’s a very small sample that’s very biased to retail investors. If you find other data sources to expand that, what you find is no outflows,” he said.

EPFR Global tracks the flow of money into and out of global mutual funds and exchange traded funds (ETFs) with USD 23.5 trillion in total assets. However, Ades says the universe tracked by the firm represents less than 10 percent of fixed-income assets under management globally.

There are three factors that debunk the claim that there has been an exodus from emerging markets, according to Ades.

Firstly, emerging market governments and companies have been issuing record levels of debt that has been met by solid demand. Emerging market sovereign and corporate dollar bond issuance hit an all-time high of USD 450 billion in 2013, compared with USD 437 billion in the previous year, which was already a record, according to Reuters quoting ING. At the beginning of this year, Indonesia raised USD 4 billion from a sale of dollar-denominated bonds – the largest US dollar bond in Asia since 1998.

(Read more: Rare bond default warning in China a good thing?)

Secondly, if you look at foreign participation in local currency sovereign bond markets, what you find is that it has stabilized since dipping in June of last year, Ades said, when concerns around emerging markets crisis reached fever pitch. Foreign ownership in Indonesia’s local currency bond market, for example, stood at 32.5 percent in December 2013, climbing from 31.9 percent in June, according to data from the Asian Development Bank. 

(Read more: India and Indonesia: Not so bad after all?)

Finally, Ades said conversations with the leading global investment managers such as Fidelity and Aberdeen Asset Management suggest that while retail investors are leaving emerging markets, large institutional investors – such as pension funds, insurance companies and sovereign wealth funds – are still investing, albeit at a smaller clip than a year or two ago.

“The key takeaway is you need to broaden your source of information. [EPFR] data is good to know what retail investors are going – but retail investors own a small portion of the market – they are not the most strategic longer-term thinking part of the market,” Ades said.

Manpreet Gill, head of fixed income currencies and commodities (FICC) investment strategy at Standard Chartered bank said Ades had a valid point in that investors must ultimately look at overall flows to get a complete picture because EPFR focuses on a specific fund universe. 

(Read more: Hedge funds sit out the emerging market turmoil)

“I would argue that, if you look at measures such as total foreign ownership of bonds or equity inflows, we have seen periods of outflows in recent history. However the picture does differ country to country, and whether we are looking at equity or fixed income flows,” he said.

“So yes, I wouldn’t say there has been a massive exodus of capital from EMs. There was a concentration of that in the second and third quarter of last year,” Gill added.

—By CNBC’s Ansuya Harjani. Follow her on Twitter @Ansuya_H

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Ukraine worries? This economy is at risk too

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the turmoil in Ukraine continues, analysts have flagged Turkey as another country to watch, given its vulnerability to both capital outflows and energy disruption, should the situation in Ukraine worsen.

Ukraine topped a list of emerging markets highly vulnerable to shifting capital outflows published by Standard & Poor’s (S&P) on Wednesday — but emerging Europe neighbor Turkey also featured high in the rankings.

In its report on emerging markets (EMs), S&P ranked Turkey as the third-most susceptible country to capital outflows, due to its high external financing needs, external debt levels and deficit. It came in just behind Ukraine — currently the focus of a West-versus-Russia showdown — and frontier market Ghana.

“Inevitably, these pressures raise questions about the impact on sovereign ratings,” wrote Moritz Kraemer in the S&P report on emerging markets.

“The key risks for many for our ratings on emerging markets sovereigns are, in our view, not tapering and its effects, but domestic policy choices and implementation.”

(Read more: Ukraine enlists billionaires to take on Russia)

S&P held Turkey’s credit rating at BB-plus in February but downgraded its outlook to “negative” from “stable,” citing the risk of an economic hard landing. Also in February, S&P cut Ukraine’s credit rating to CCC and warned it was at risk of defaulting on its sovereign debt.

Capital inflows into emerging markets retrenched over the summer of 2013, after the US  Federal Reserve signaled the start of bond purchase tapering by year-end. These markets were also hit in early 2014 as investors became more risk-adverse, in part due to continuing weak data out of emerging-market lynchpin China.

In the first two months of this year, there were net outflows of USD 30.2 billion from emerging market equity funds and USD 12.9 billion from emerging market bonds funds, according to fund tracker EPFR.

Kraemer judged that Turkey was particularly vulnerable to the outflows, due to its high external financing needs worth 139 percent of GDP (gross domestic product) and external short-term debt at 166 percent of GDP.

“The results indicate that the popular moniker of the so-called ‘fragile five’ (Turkey, South Africa, Indonesia, India and Brazil) actually masks significant differences between these emerging economies,” he said.

“While Turkey and South Africa do appear in the top 10 of vulnerable economies, Brazil is actually in the bottom one (mostly thanks to its low stock of short-term external debt), while India and Indonesia occupy the middle-ground.”

(Read more: Venezuela’s not in danger yet: Pro)

Another concern for international investors in Turkey is the aggressive interest rate hikes — in January the central bank raised its overnight lending rate from 7.75 percent to 12 percent. The hikes were aimed at supporting the lira, which has fallen around 24 percent against the US  dollar since the beginning of 2013.

“While the Turkish central bank’s panicky rate hikes on January 28 now seem like a distant memory, they ended up raising more question than answers, at a time when Turkey’s economy is slowing sharply ahead of crucial local election on March 30,” said Nick Spiro of Spiro Sovereign Strategy in a research note on Wednesday.

(Read more: Could South Africa be the next to hike rates?)

Phoenix Kalen, a strategist at Societe Generale, added that Turkey was also vulnerable to the energy supply disruption which could result if the West levied sanctions against Russia for its actions in Ukraine.

“Turkey has high energy vulnerability,” Kalen said in a note on Wednesday. “Relative to developed markets, EM countries in EMEA (Europe, the Middle East and Africa) are more reliant on Russian natural gas imports, have stronger trade linkages to Russia and Ukraine, and face steeper increases in import costs from higher oil prices.”

(Read more: Sanctions? We’ll seize West’s assets, Russia warns)

“These dependencies are likely to translate into higher asset price deterioration and volatility for EM countries relative to their developed markets counterparts, should tensions rise between Russia and the West,” he added.

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Are Russian stocks a screaming buy?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

In the wake of the Ukraine crisis, Russian stocks have tanked, but as tensions appear to be easing, some analysts see an opportunity for cautious bargain hunting.

“The market was already very cheap before the crisis,” said Karine Hirn, CEO at East Capital, which has around USD 4.5 billion under management in the region.

(Read more: Cramer sees buying opportunities in Ukraine upheaval)

“Now, we have around 3.8 (times) price to earnings. Of course, some of the investment opportunities that arise can be compelling,” she told CNBC. By way of comparison, the broader emerging European markets are trading around 6.3 times earnings and emerging Asian markets are at 10.5 times, according to data from Credit Suisse.

“But it’s all about how long term our investors are,” Hirn cautioned. “You need to see what’s going on first before actually really moving in.”

There’s a lot of tension in the region to make investors nervous.

The bourse lost nearly USD 60 billion in market capitalization on Monday, ending the session down 11 percent, its worst fall in five years. However, it regained around 5 percent on Tuesday before finishing nearly flat on Wednesday. The country’s central bank jacked up interest rates and Reuters reported it spent as much as USD 12 billion to support a weak currency.

Tensions spiked after Russian President Vladimir Putin said over the weekend he reserved the right to invade Ukraine to protect ethnic Russians and his country’s interests.

(Read more: Can Russia take my Pepsi? Consumer brands at risk)

But he has appeared to back away from military action in the Ukrainian region of Crimea. Troops that had been on a training exercise near Ukraine’s border returned to base and Putin stated that any force used would only be a “last resort.” European Union (EU) officials will meet in Brussels on Thursday to discuss the situation.

Despite the tensions, others also see the potential for bargains in Russia’s market.

“Within the emerging markets, it’s probably one of the candidates that ought to have done a lot better even coming into the Ukraine crisis,” said Sean Darby, chief global equity strategist at Jefferies, noting his bank is long on the market. “It’s very cheap,” and offers an around 5 percent dividend yield, he added.

“They’ve shot themselves in the foot,” he acknowledges, but he adds, “There’s nothing inherently wrong with the solvency of the financial system. Unless they put in sanctions, it’s hard to see it having an effect on the economy.”

(Read more: Belligerent Putin dismisses ‘tactical’ market turmoil)

Darby isn’t overly concerned that the country is very dependent on its oil exports, as it’s well known and oil prices have stayed relatively high for around three years.

Hirn noted East Capital has generally avoided playing the commodity exporters, but the recent market turbulence may have offered some opportunities.

“The ruble has depreciated and might be kept under pressure. And this is benefitting exporters and commodities,” Hirn said. “We’ve actually always been very strongly underweight on commodities, but right now tactically we are actually increasing our exposure to exporters.”

But she believes the real opportunities may be in the consumer sector. While most emerging markets are a play on the rising middle class and growing consumer spending, Hirn notes Russia’s middle class has already “exploded,” with around 70 percent of the population already in that income bracket.

(Read more: Could Ukraine trigger a full-blown EM crisis?)

“What is interesting with the Russian consumers is they like spending. They do not save, they spend. And that’s why it’s one of the healthiest and dynamic consumer markets in the world,” Hirn said.

Although she doesn’t expect the West to impose sanctions on the country, she believes any restrictions on imports will actually benefit the country’s domestic consumer players.

—By CNBC.Com’s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow