Reuters logo
EMERGING MARKETS-Shifting US rate expectations weigh heavy on emerging markets
December 15, 2016 / 10:55 AM / a year ago

EMERGING MARKETS-Shifting US rate expectations weigh heavy on emerging markets

LONDON, Dec 15 (Reuters) - Emerging equities fell 1.4 percent and currencies slipped against the dollar after the U.S. Federal Reserve suggested a brisker pace of monetary tightening next year, with only the rouble bucking the weaker trend.

MSCI’s emerging market index posted its biggest fall in more than a month, with bourses across Asia , Russia, South Africa and Greece suffering drops.

While the Fed’s 25 basis-point interest rate rise had been priced in, investors were rattled by policymakers signalling three hikes in 2017 as the bank adapted its outlook to the incoming administration of President-elect Donald Trump and its promises of tax cuts, spending and deregulation.

The dollar galloped to a 14-year high in the wake of the Fed meeting. The broader reaction was mixed, however.

“Markets got a little bit spooked...now the Fed is suggesting three hikes, but you have to take this with a pinch of salt,” said Luis Costa, emerging markets strategist at Citi.

“Back in December 2015, the dot plot showed 4-5 hikes and we have had one hike this year, so there’s a tendency for the FOMC to deflate the dot plot as we go.”

South Africa’s rand weakened more than 1 percent against the dollar to its weakest level this week in its third day of losses.

The Mexican peso, a lightning rod for emerging market sentiment in the wake of the U.S. election, slipped 0.5 percent to its weakest level in nine days.

However, Russia’s rouble strengthened nearly 1 percent, lifted by a rise in oil prices. Investors also like the rouble because it is backed by one of the highest real interest rates in emerging markets.

Turkey’s lira gained 0.6 percent as an adviser to President Tayyip Erdogan said rumoured capital controls were “out of question” and latest data showed the country recorded a surplus of 10 billion lira ($2.85 billion) in November thanks to a tax amnesty.

The lira is seen as one of the most vulnerable emerging currencies and analysts note Turkey’s reluctance to raise interest rates, in contrast with others such as South Africa and Mexico.

“EM central banks need to provide sufficient carry to ensure attractiveness of their currency. Any consideration about a cooling or even weak real economy would risk getting punished by the FX market,” Commerzbank told clients, highlighting Turkey as an example.

“Those EM central banks which ignore the paradigm shift in US rates and pretend that business as usual will suffice, are now the most vulnerable.”

South Korea held interest rates steady at a record low of 1.25 percent, sitting tight in the face of a political crisis at home and Indonesia is also expected to do so. .

Mexico is expected to follow the Fed and raise interest rates for the fifth time this year.

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

on year

Morgan Stanley Emrg Mkt Indx 860.56 -12.20 -1.40 +8.36

Czech Rep 906.03 +3.01 +0.33 -5.26

Poland 1924.38 -10.49 -0.54 +3.51

Hungary 31320.83 -53.45 -0.17 +30.94

Romania 6991.77 -17.74 -0.25 -0.18

Greece 608.08 -11.11 -1.79 -3.69

Russia 1134.63 -14.29 -1.24 +49.88

South Africa 43802.84 -248.86 -0.56 -4.35

Turkey 77022.34 +141.50 +0.18 +7.38

China 3118.32 -22.21 -0.71 -11.89

India 26519.56 -83.28 -0.31 +1.54

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.00 27.01 +0.03 -0.02

Poland 4.44 4.43 -0.19 -4.16

Hungary 313.65 313.66 +0.00 +0.32

Romania 4.52 4.52 -0.02 +0.04

Serbia 123.46 123.38 -0.06 -1.61

Russia 61.50 62.12 +1.01 +18.61

Kazakhstan 335.10 331.91 -0.95 +1.61

Ukraine 26.22 26.32 +0.38 -8.65

South Africa 14.08 13.92 -1.12 +9.85

Kenya 102.25 102.10 -0.15 -0.05

Israel 3.84 3.82 -0.39 +1.31

Turkey 3.51 3.53 +0.48 -17.00

China 6.93 6.90 -0.36 -6.29

India 67.81 67.45 -0.53 -2.38

Brazil 3.37 3.37 +0.00 +17.52

Mexico 20.58 20.46 -0.56 -16.56

Debt Index Strip Spd Chg %Rtn Index

Sov‘gn Debt EMBIG 362 -1 .44 7 31.78 1

All data taken from Reuters at 10:09 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.

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 ) ($1 = 3.5101 liras) (Additional reporting by Claire Milhench)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below