EMERGING MARKETS-Soaring dollar sends Turkey, India to record lows; yuan t… – Reuters

 In Business

By Claire Milhench
| LONDON

LONDON Nov 24 The Turkish lira, Indian rupee
and offshore Chinese yuan crashed to fresh record lows on
Thursday against the strengthening dollar, while emerging stocks
slipped half a percent after U.S. bond yields hit multi-year
peaks.

Emerging market assets have been pounded since Donald
Trump’s victory in the U.S. presidential election as his
expansionary fiscal policies are expected to fuel inflation and
prompt the U.S. Federal Reserve to tighten more aggressively
than previously thought.

With the U.S. dollar firming to 13-1/2 year highs and
U.S. two-year Treasury bond yields hitting 6-1/2 year
highs on Wednesday after strong U.S. manufacturing data, the
more vulnerable emerging currencies touched fresh record lows.

“The price action we’re witnessing now is very susceptible
to these dollar swings and the upside in U.S. Treasuries,” said
Roxana Hulea, emerging markets strategist at Societe Generale.

“Our bias remains for weaker emerging market currencies over
the coming quarters,” she said, adding that aside from the
impact of Trump’s policies, there were a number of political
events looming in Europe, making investors wary of deploying
funds into riskier assets.

The Turkish lira was down as much as 0.7 percent as
investors worried political pressure would prevent the central
bank raising rates at its meeting later on Thursday.

President Tayyip Erdogan said on Wednesday that Turkey’s
real interest rate was one of the highest in the world,
something which had to change in order to achieve high growth.

“The president’s dovish policy prescriptions don’t match
market realities,” said Hulea, adding she still saw a faint
possibility the central bank could deliver a modest hike of 25
basis points in the repo rate today.

But if the central bank failed to satisfy the market,
further sell-offs could follow, she said.

“The collapse in FDI (foreign direct investment) is negative
for Turkey’s growth over the medium to long term. That’s caused
by political concerns with the purge and I don’t see a near term
end to this,” she said.

Worries about India’s demonetisation drive also pushed the
Indian rupee to a record low of 68.86 per dollar, at
which level the central bank was suspected of intervening.

“Market interest rates and FX implied yields in (the rupee)
have plunged after the rupee demonetisation rule implemented on
Nov. 9,” analysts at BNP Paribas said in a note.

“Three-month non-deliverable forward implied yields were
around 6 percent in October; they have now fallen to 4.7
percent. With NDF implied yields plunging, the attractiveness of
these positions has diminished.”

The rupee has weakened around 3 percent so far this month on
expectations of a hit to economic growth in the wake of the
government’s demonetisation moves. The Nifty 50 stocks index
was also down almost 1 percent.

The Hong Kong-traded offshore yuan, used frequently
by foreigners, weakened past the 6.96 level for the first time
since it started trading overseas in late 2010.

The mainland yuan also hit an 8-1/2 year low
after the People’s Bank of China set its daily guidance rate at
its weakest since June 2008.

The Philippine peso hit levels not seen since
November 2008 and other Asian currencies hit multi-month
troughs. The Malaysian ringgit was at a near 14-month low
and the Indonesian rupiah hit a near six-month low.

Commodity-related currencies fared a little better, helped
by robust commodity prices on expectations of higher demand.

The South African rand was 0.2 percent firmer ahead
of a central bank meeting at which it is expected to keep rates
on hold at 7 percent. “Temporarily they are out of the firing
line and safe with just delivering a hawkish message,” said
Hulea.

More important for investors were upcoming ratings reviews,
particularly those from Fitch and S&P next Friday, she said.

“They have them on the cusp of a downgrade to below
investment grade, and investors want to see if they postpone
given what’s been happening on the political front or if they
just go ahead.”

The Russian rouble was also steady, helped by oil
prices edging back above $49 a barrel. But the
Brazilian real lost 1.24 percent.

The benchmark emerging equity index fell 0.5
percent, in the red for a second day, with the big Asian
manufacturing markets leading the losses.

Korean stocks lost 0.8 percent, Taiwan shares
slipped 0.3 percent and Indonesian stocks
tumbled as much as 2.1 percent.

But emerging Europe fared better with Warsaw shares
up 0.6 percent and Russian dollar-denominated stocks up
0.9 percent.

For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml

For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5

For GRAPHIC on global currency performance against the dollar,
year to date, see tmsnrt.rs/2egbfVh

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

Emerging Markets Prices from Reuters
Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley
Emrg Mkt Indx 852.92 -3.00 -0.35 +7.40

Czech Rep 888.10 -0.62 -0.07 -7.13

Poland 1804.78 +8.15 +0.45 -2.92

Hungary 30192.21 +35.92 +0.12 +26.22

Romania 6826.16 -12.11 -0.18 -2.54

Greece 623.79 -8.73 -1.38 -1.20

Russia 1025.23 +8.28 +0.81 +35.43

South Africa 43941.04 -135.84 -0.31 -4.05

Turkey 75027.27 -9.63 -0.01 +4.60

China 3241.49 +0.35 +0.01 -8.41

India 25832.22 -219.59 -0.84 -1.09

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.02 27.01 -0.03 -0.07

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