Wednesday, January 26

Fateful day from India to Turkey shakes emerging market investors

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. Chinese stocks listed in the US tumbled as tech companies were disappointed with earnings.

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.

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“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 1.3% in 2021, after erasing year-to-date gains several times. The currency equivalent indicator has also fluctuated between profit and loss.

All the changes are driving up the price of coverage, and the average cost of protection against default by emerging market governments is heading for the largest annual increase since 2018.

Political movements also set off fireworks on the lyre. It sank 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 gauge on Thursday jumping the most this week in more than three years, 30%. That comes as the central bank’s decision to cut borrowing costs for a third month has eroded investors’ confidence in its independence.

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

It was politics that generated losses in Chile. The peso sank to its lowest level since May 2020 when traders punished the currency ahead of Sunday’s hard-fought elections. The currency has weakened around 4.3% in three days, its worst performance since January.

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 more than 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

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