Emerging markets slide as oil price drops

Emerging markets declined on Monday as oil sank to a five-and-a-half year low and demand for the safe-haven yen picked up.

Indonesia's rupiah fell to a six-year trough and Russia's ruble hit record lows, Reuters reports. 

US stocks recorded their biggest weekly low in two-and-a-half years last week among expectations that the Federal Reserve may consider raising interest rates.

At one point, US crude futures CLc1 fell more than 2.5 per cent to $56.25 per barrel before regaining some ground. They were last up one per cent at $58.40 but have fallen more than 40 per cent this year.

"The template is still in place: over-supply and dwindling demand mean that the pressure will still be on oil. However, there's a lot of pessimism over the oil price which has already been factored into the equity market," Alastair McCaig, market analyst at IG, said.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS reached its lowest level since March at one point, while Japan's Nikkei share average .N225 declined by 1.6 per cent, despite prime minister Shinzo Abe's election victory on Sunday.

The Tankan business survey revealed a worsening of business sentiment in the fourth quarter, as the headline index slipped to +12 from +13 in the previous quarter.

However, the weak yen and declining oil price could encourage manufacturers to spend more on wages and capital expenditure. According to the survey, big firms are expected to raise capital expenditure by 8.9 per cent in the fiscal year ending in March 2015 - higher than a median forecast of a 8.0 per cent rise.

Demand for the safe-haven yen rose and the dollar briefly fell as low as 117.78 yen before recovering to 118.38 yen.

This was above the two-week low of 117.44 yen reached last Thursday, but far from the seven-year high of 121.86 yen set one week ago.