Monday, January 24

Rand hits a one-year low – Moneyweb

It’s starting to look like there’s no place to hide in emerging markets.

In Turkey, the lira tumbled to another record low of more than 11 to the dollar after policy makers cut interest rates despite double-digit inflation. In India, the country’s largest initial public offering failed to debut. Shares in China fell on tech companies’ disappointment with earnings.

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Everything shows that investors are becoming less forgiving of policy mistakes and overvaluation. Many developing nations face a dilemma between tightening policy to contain price pressures and keeping it flexible to support the fragile economic recovery.

“Headwinds from emerging markets are picking up as global financial conditions tighten, new waves of Covid-19 continue to rage, importers are hit by high energy prices and rising local inflation. it becomes a challenge to the credibility of monetary policy, “Danske Bank A / S strategists led by Minna Emilia Kuusisto wrote in a note.

Thursday’s moves, which created a red sea in market prices, worsened a volatile year. MSCI EM’s benchmark equity index has fallen 1.4% in 2021, after erasing year-to-date gains several times. The equivalent currency indicator has also fluctuated five times between profit and loss.

All changes are driving up the price of hedging, and the average cost of protection against default by emerging market governments is heading towards the largest annual increase since 2018. In the debt market, on Thursday, Turkey had worst performance, with its 10-year sovereign the yield jumps 45 basis points for fear of runaway inflation.

Political movements also set off fireworks.

Moderate comments in South Africa hurt the rand, sending it to a low this year. South Africa raised rates, but investors saw it as a moderate hike after officials said further adjustment would be gradual.

Read: Reserve Bank raises repurchase rate to 3.75%

With this, the coin is heading for its worst year since 2018.

Rand’s performance for one year

The lira sank to more than 11 to the dollar just four business days after crossing the 10 mark. Options traders are betting on more losses, with a one-month volatility indicator rising the most this week by more than three. years, at 30%. That comes as the central bank’s decision to cut borrowing costs for a third month has eroded investors’ confidence in its independence.

As for equities, the day began with indices plummeting in China and Hong Kong, after Morgan Stanley said Chinese companies are witnessing the worst earnings season since 2018. The bank also predicted “sizable” declines in rates. the forecasts.

The mood soured even further when real estate developer Shinsun Holdings plunged more than 50% after the lockdown period related to its initial public offering expired. The company moved quickly to allay debt default fears, a flash point for the market given the troubles at China Evergrande Group.

In India, One 97 Communications Ltd., the operator of the country’s largest digital payments provider, lost a quarter of its initial public offering price on day one. The slide surprised even those who questioned its assessment. Retail investors who were quick to offer, along with BlackRock Inc. and the Canada Pension Plan Investment Board, are now running big losses.

© 2021 Bloomberg LP

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