Wednesday, October 27

Turkish lira leads EMEA losses on China woes and energy crunch

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Turkey’s lira fell to new lows as emerging market stocks and currencies tumbled on Tuesday, with fears of a Chinese debt crisis and a global energy crunch denting appetite for risk-driven assets.

The lira fell as much as 0.5% to a record low of 9.0371 to the dollar, and was among the biggest decliners in Europe, the Middle East and Africa (EMEA).

Uncertainty grew after China’s no. 2 property developer, Evergrande, missed its third round of bond payments in three weeks. This intensified fears over contagion involving the entire sector, which accounts for about a quarter of China’s economic growth.

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A report suggested more Chinese scrutiny towards ties that the country’s state banks and other financial institutions have developed with big private firms, causing steep losses in major technology stocks, which have been the focus of government ire this year.

Losses in Chinese and Hong Kong stocks took MSCI’s emerging market (EM) stock index more than 1% lower. Investors also took a sizeable bite out of Chinese bonds, with those linked to the property sector suffering the most.

A global energy supply crunch, coupled with elevated oil prices, dented sentiment as markets feared that the resulting upward pressure on inflation could stifle economic growth, particularly in EMs.

“The upswing in commodity prices led by oil continue to grip; resulting in higher yields and softer equities. USD also swung back up broadly despite firmer commodities, suggesting inflation fears are fueled…So much so that even oil-driven currencies are on the back foot,” analysts at Mizuho wrote in a note.

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Russia’s rouble fell 0.3% though it traded near four-month highs.

A dollar rally, on the back of growing expectations of policy tightening by the US Federal Reserve, also weighed on most emerging market currencies. MSCI’s index of EM currencies fell 0.3% to 1-1/2 month low.

Central European currencies moved little to the euro.

The Polish zloty rose slightly as a member of the central bank’s monetary policy committee flagged a possible interest rate hike in November, after the bank delivered a surprise increase last week.

EM currencies have over the past month reversed all the gains made this year, deepening concerns over a slowdown in economic growth in the remainder of the year.

Investors are now watching for more hawkish signals from EM central banks as they struggle to contain a recent spike in inflation.

For GRAPHIC on emerging market FX performance in 2021, see For GRAPHIC on MSCI emerging index performance in 2021, see

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Editing by Timothy Heritage)

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