LONDON Feb 3 An unexpected Chinese interest
rate raise on Friday hit emerging stocks led down by weakness
across Asia, while the Turkish lira resumed its downward
trajectory as data showed a sharp jump in inflation.
The Asian losses offset modest gains in Europe and put the
benchmark emerging equity index on course to end the
week flat, despite trading up earlier in the week on the back of
strong factory data across the developing world.
Chinese mainland shares slipped 0.7 percent on
their first day of trading after a week-long break for Lunar New
Year, and Hong Kong shares fell 0.2 percent, as Beijing raised
short-term interest rates by 10 basis points.
The signs of a move towards tighter policy overshadowed data
showing Chinese factory activity expanded for the seventh
straight month in January, albeit at a slower rate.
Many linked the move to Beijing's efforts to alter
expectations of a one-way path for the yuan as expectations of
currency weakening have contributed to huge capital outflows.
"The slide in the renminbi that we saw last year has
reversed in January - the local authorities want to provide more
support for the currency against the dollar or other currencies
they have trade flows with," said Cristian Maggio, a strategist
at TD Securities.
The move pushed the Chinese yuan a touch firmer
while 10-year bond yields hit the highest since August 2016
before easing. The Taiwan dollar hit a 19-month
high, but as the dollar recovered some losses most emerging
The Turkish lira snapped a four-day winning streak,
falling 0.4 percent against the dollar although it is on course
for its best weekly gain since last May.
Economic data remains overwhelmingly negative, with consumer
inflation jumping 2.46 percent in January, well above forecasts
of 1.78 percent in a Reuters poll and inching towards a
double-digit annual increase.
The government said it could temporarily remove a tax on
white goods to support domestic demand, boosting shares in
manufacturers Arcelik and Vestel by more than 3 percent at one
point, the former surging to record highs .
The overall Turkish index was flat, although lira
weakness has propelled it to the fourth straight week of gains.
Investors remain lukewarm on Turkey, noting deteriorating
fundamentals and the central bank's reluctance to raise interest
rates to rein in inflation, although there are signs some funds
are being tempted to buy the beaten-down assets.
"We have had very little exposure to Turkey for a long time,
since before the coup and our exposure has gradually reduced,"
said Kieran Curtis, a bond fund manager at Standard Life
"We've done very well by being underweight and that's the
fact which is making it tempting to go back in rather than
anything we see coming out of Turkey."
The Russian rouble weakened 0.2 percent against the
dollar before a central bank rate-setting meeting later at which
the bank is seen holding rates at 10 percent. The currency's
gains have stalled since authorities said they would start
buying hard currency to replenish depleted reserve funds.
Russia's services sector activity expanded at the fastest
pace in 8-1/2 years in January, adding to evidence that the
economy has turned a corner.
"In the long term (FX purchases) is a respectable goal that
will add to Russia's strength and give the government some
additional budget discipline. But at the same time it will help
weaken the currency, smooth volatility, and reduce the
correlation between the dollar/rouble exchange rate and oil
prices," Maggio added.
South African stocks fell almost 1 percent to three-week
lows, as the Chinese rate move hit commodity prices. A
5 percent fall in shares of iron ore miner Kumba also dragged on
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 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
Emrg Mkt Indx 915.44 +0.23 +0.03 +6.17
Czech Rep 942.91 +2.00 +0.21 +2.31
Poland 2071.02 +5.88 +0.28 +6.32
Hungary 32626.13 +50.97 +0.16 +1.95
Romania 7498.09 +24.48 +0.33 +5.83
Greece 623.39 +0.33 +0.05 -3.15
Russia 1177.82 +6.40 +0.55 +2.21
South Africa 45484.82 -377.16 -0.82 +3.61
Turkey 87300.63 -93.56 -0.11 +11.73
China 3140.65 -18.51 -0.59 +1.19
India 28221.78 -4.83 -0.02 +5.99
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.00 27.02 +0.08 +0.04
Poland 4.30 4.31 +0.31 +2.39
Hungary 309.19 308.95 -0.08 -0.12
Romania 4.51 4.52 +0.10 +0.49
Serbia 123.93 123.97 +0.03 -0.47
Russia 59.47 59.32 -0.25 +3.01
Kazakhstan 323.46 325.30 +0.57 +3.15
Ukraine 27.01 26.92 -0.33 -0.04
South Africa 13.42 13.39 -0.19 +2.33
Kenya 103.60 103.80 +0.19 -1.19
Israel 3.76 3.76 -0.03 +2.40
Turkey 3.75 3.74 -0.30 -5.88
China 6.87 6.88 +0.07 +1.04
India 67.33 67.21 -0.19 +0.91
Brazil 3.12 3.12 +0.00 +4.15
Mexico 20.55 20.54 -0.04 +0.79
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 341 -1 .01 7 53.01 1
(Additional reporting by Sujata Rao; Editing by Tom Heneghan)