Emerging Markets – Turkish Lira Leads EMEA Losses Due to China Problems and Energy Crisis
* Breaking the Turkish lira 9 against the dollar
The energy crisis is fueling inflation fears
* Dollar rise puts pressure on EMFX
* Hong Kong’s technical specialties falter
by Ambar Warrick
(Reuters) – The Turkish lira plunged to new lows as emerging market stocks and currencies tumbled on Tuesday, as fears of a Chinese debt crisis and a global energy crisis dampened appetite for risk-driven assets.
The lira fell about 0.5 percent to a record low of 9.0371 per dollar, and was among the biggest losers in Europe, the Middle East and Africa.
Uncertainty grew after China did not. A second real estate developer, Evergrande, has missed its third round of bond payments in three weeks. This intensified fears of contagion across the entire sector, which accounts for about a quarter of China’s economic growth.
A report pointed to more Chinese scrutiny of the relationships that the country’s state banks and other financial institutions have developed with major private companies, causing huge losses in major technology stocks, which have been the focus of government anger this year.
Losses in Chinese and Hong Kong stocks sent the MSCI emerging market index down more than 1%. Investors also received a large portion of Chinese bonds, and those linked to the real estate sector were the ones suffering the most.
The global energy supply crisis, along with rising oil prices, dampened sentiment as markets feared upward pressure from inflation could stifle economic growth, particularly in emerging markets.
“The rally in commodity prices led by oil continues to be in control; resulting in higher yields and weaker stocks. The US dollar has also swung broadly again although commodities have held steady, suggesting that inflation fears have been inflamed…so much so that currencies that Oil-driven still continues, analysts at Mizuho wrote in a note.
The Russian ruble fell 0.3% despite trading near four-month highs.
The dollar’s rise, on the back of increased expectations of policy tightening by the US Federal Reserve, also affected most emerging market currencies. The MSCI Emerging Markets Currency Index fell 0.3% to a one-and-a-half month low.
Central European currencies moved slightly against the Euro.
The Polish zloty rose slightly as a member of the central bank’s monetary policy committee announced a possible rate hike in November, after the bank made a surprise increase last week.
Emerging market currencies over the past month reversed all the gains this year, deepening concerns about slowing economic growth for the remainder of the year.
Investors are now watching for more hawkish signals from emerging market central banks as they struggle to contain the recent rise in inflation.
For a GRAPHIC on the performance of emerging market FX in 2021 see http://tmsnrt.rs/2egbfVh For a GRAPHIC on the performance of the MSCI Emerging Index in 2021 see https://tmsnrt.rs/2OusNdX
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