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EMERGING MARKETS-Turkish selloff leads broader emerging market weakness
October 9, 2017 / 9:18 AM / 14 days ago

EMERGING MARKETS-Turkish selloff leads broader emerging market weakness

LONDON, Oct 9 (Reuters) - Turkish stocks and bonds fell on Monday and the lira tumbled 2.5 percent after a visa spat erupted with the United States, while broader emerging assets too felt the heat from Treasury yields near five-month highs.

Friday’s U.S. data showing an acceleration in wage growth cemented expectations of a December rate rise, lifting the dollar and U.S. yields, and making an impact across emerging markets.

MSCI’s equity index slipped 0.2 percent, snapping a five-day winning streak, while average local currency emerging bond yields were at 6.05 percent, a six-week high.

The main focus was however on Turkey after the United States and Ankara mutually scaled back visa services in a fresh sign of deteriorating relations between the NATO allies.

Dollar bonds fell across the curve while Turkey’s portion of the sovereign dollar bond index widened 9 bps to its highest premium over Treasuries since end-September. The lira shed 2 percent to the dollar.

The Istanbul stock market tumbled 3.6 percent, led by Turkish Airlines and airports operator.

Nomura economist Inan Demir noted that Turkey was already more vulnerable than other emerging markets to higher U.S. yields because of a big current account deficit and also high inflation, which reduced its real yield advantage.

Turkish one-year yields are now over 12 percent but core inflation is running at almost 11 percent. That contrasts with most big emerging economies which are seeing inflation fall.

“Turkey already stood apart from its peers .... If coupled with high political risks, its isolation would be further amplified,” Demir said. “We need to see either a lowering of the risk premium by defusing the tensions or an increase in the risk premium offered by the lira by raising interest rates.”

While authorities could be forced to raise rates if the lira selloff continues, “the bar for central bank action will be high,” Demir said, noting President Tayyip Erdogan’s strident opposition to higher interest rates.

The South African rand fell 0.6 percent, staying near six-month lows hit on Friday against the dollar, while the rouble slipped 0.3 percent to a 10-day low. Latin American and Asian currencies have also lost ground in recent days

HSBC called currencies the “weak link” of emerging markets.

“On the surface they’ve done well, but only having borrowed their entire lustre from a weakening dollar,” they told clients.

“That they haven’t been able to post trade-weighted gains amidst such a strong unicycle is a warning not to expect much alpha from this source on the secular horizon.” 


For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, 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

on year

Morgan Stanley Emrg Mkt Indx 1100.62 -2.50 -0.23 +27.64

Czech Rep 1059.41 +1.35 +0.13 +14.95

Poland 2486.59 +7.13 +0.29 +27.65

Hungary 38013.99 +72.17 +0.19 +18.78

Romania 7993.61 +9.29 +0.12 +12.82

Greece 747.86 +2.31 +0.31 +16.19

Russia 1127.99 -6.31 -0.56 -2.11

South Africa 51276.41 +266.03 +0.52 +16.80

Turkey 00412.99 -3724.49 -3.58 +28.51

China 3374.87 +25.93 +0.77 +8.74

India 31873.49 +59.27 +0.19 +19.71

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 25.88 25.89 +0.06 +4.36

Poland 4.31 4.31 -0.00 +2.18

Hungary 312.30 311.89 -0.13 -1.11

Romania 4.58 4.57 -0.02 -0.89

Serbia 119.12 119.12 +0.00 +3.55

Russia 58.35 58.16 -0.34 +4.99

Kazakhstan 341.42 343.42 +0.59 -2.28

Ukraine 26.58 26.75 +0.64 +1.58

South Africa 13.80 13.77 -0.23 -0.49

Kenya 103.26 103.10 -0.15 -0.86

Israel 3.51 3.52 +0.18 +9.64

Turkey 3.71 3.61 -2.57 -4.92

China 6.62 6.65 +0.45 +4.82

India 65.40 65.39 -0.01 +3.90

Brazil 3.16 3.16 +0.00 +3.09

Mexico 18.62 18.55 -0.40 +11.25

Debt Index Strip Spd Chg %Rtn Index

Sov‘gn Debt EMBIG 304 1 .01 8 03.46 1

All data taken from Reuters at 09:06 GMT. Currency percent change calculated from the daily U.S.

close at 2130 GMT.

Reporting by Sujata Rao; Editing by Matthew Mpoke Bigg

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