Monday, January 24

The lira plummets again as emerging market assets sink amid virus fears

Renewed concerns about the fast-spreading variant of Omicron sent an index of emerging markets (EM) equities closely followed to fresh one-year lows on Monday, with Chinese stocks finding little support from an interest rate cut and the Turkish lira falling to a new record. under.

The overall mood was grim in global markets, with investors selling stocks, emerging market currencies and commodities, as the Omicron spread caused the Netherlands to close on Sunday, while other countries took similar action.

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The lira once again stood out among its emerging market peers with a 6% drop to a record low of 17.6 per dollar following President Tayyip Erdogan’s new promise to keep interest rates low, citing the usury doctrine. Islamic.

The president’s push for 500 basis points of interest rate cuts since September has triggered Turkey’s worst currency crisis in two decades, with the lira falling 35% in the past 30 days despite $ 6 billion in government interventions. central bank this month.

“We expect interventions to continue to advance, although given concerns about insufficient reserves, interventions are unlikely to be substantial and therefore unlikely to stabilize the currency,” wrote Gokce Celik, senior economist at Unicredit. , on a note.

“The strong depreciation of the currency and the high volatility in the markets could already be risking a tightening of financial conditions by driving up market rates.”

Turkey’s major first-class stock index regained some composure, rising around one percent after a strong selloff on Friday that triggered circuit breakers that temporarily halted trading.

The broader MSCI EM equity index fell 2% to sink to its lowest level since November 2020.

Shanghai shares closed more than one percent lower despite a cut to the benchmark loan prime rate (LP) for the first time in 20 months to prop up the slowdown in the economy.

India’s NS Nifty 50 Index fell 2.4%, on course to close 10% below its October record.

All eyes were on Chilean markets after leftist Gabriel Boric won the second round of the presidential election on Sunday, in the most polarized election since the country’s return to democracy in 1990.

Boric pledged to review Chile’s market-oriented economic model and said it would seek to create a state-owned lithium company and criticized the privatization of the sector, where Albemarle and SUM are currently the two main players.

The IShares MSCI Chile ETF fell more than 6% in the meager pre-market trading in the US, while SQM’s US-listed shares fell 7%. The Chilean peso has lost almost 16% against the dollar this year.

“Once the dust settles, a buying opportunity could arise in Chile. Political volatility will be contained and Congress will reject extreme policies, “analysts at BC Research said in a note.

In addition to the problems, Fitch Ratings over the weekend downgraded Sri Lanka’s sovereign rating to ‘CC’ from ‘CC’, citing an increasing risk of debt default in 2022. Sri Lanka faces debt service payments in currency. foreign exchange of $ 6.9 billion in 2022.

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