By Claire Milhench
LONDON, Nov 24 (Reuters) – The Turkish lira, Indian rupee and offshore Chinese yuan crashed to fresh record lows on Thursday against the strengthening dollar, while emerging stocks slipped half a percent after U.S. bond yields hit multi-year peaks.
Emerging market assets have been pounded since Donald Trump’s victory in the U.S. presidential election as his expansionary fiscal policies are expected to fuel inflation and prompt the U.S. Federal Reserve to tighten more aggressively than previously thought.
With the U.S. dollar firming to 13-1/2 year highs and U.S. two-year Treasury bond yields hitting 6-1/2 year highs on Wednesday after strong U.S. manufacturing data, the more vulnerable emerging currencies touched fresh record lows.
“The price action we’re witnessing now is very susceptible to these dollar swings and the upside in U.S. Treasuries,” said Roxana Hulea, emerging markets strategist at Societe Generale.
“Our bias remains for weaker emerging market currencies over the coming quarters,” she said, adding that aside from the impact of Trump’s policies, there were a number of political events looming in Europe, making investors wary of deploying funds into riskier assets.
The Turkish lira was down as much as 0.7 percent as investors worried political pressure would prevent the central bank raising rates at its meeting later on Thursday.
President Tayyip Erdogan said on Wednesday that Turkey’s real interest rate was one of the highest in the world, something which had to change in order to achieve high growth.
“The president’s dovish policy prescriptions don’t match market realities,” said Hulea, adding she still saw a faint possibility the central bank could deliver a modest hike of 25 basis points in the repo rate today.
But if the central bank failed to satisfy the market, further sell-offs could follow, she said.
“The collapse in FDI (foreign direct investment) is negative for Turkey’s growth over the medium to long term. That’s caused by political concerns with the purge and I don’t see a near term end to this,” she said.
Worries about India’s demonetisation drive also pushed the Indian rupee to a record low of 68.86 per dollar, at which level the central bank was suspected of intervening.
“Market interest rates and FX implied yields in (the rupee) have plunged after the rupee demonetisation rule implemented on Nov. 9,” analysts at BNP Paribas said in a note.
“Three-month non-deliverable forward implied yields were around 6 percent in October; they have now fallen to 4.7 percent. With NDF implied yields plunging, the attractiveness of these positions has diminished.”
The rupee has weakened around 3 percent so far this month on expectations of a hit to economic growth in the wake of the government’s demonetisation moves. The Nifty 50 stocks index was also down almost 1 percent.
The Hong Kong-traded offshore yuan, used frequently by foreigners, weakened past the 6.96 level for the first time since it started trading overseas in late 2010.
The mainland yuan also hit an 8-1/2 year low after the People’s Bank of China set its daily guidance rate at its weakest since June 2008.
The Philippine peso hit levels not seen since November 2008 and other Asian currencies hit multi-month troughs. The Malaysian ringgit was at a near 14-month low and the Indonesian rupiah hit a near six-month low.
Commodity-related currencies fared a little better, helped by robust commodity prices on expectations of higher demand.
The South African rand was 0.2 percent firmer ahead of a central bank meeting at which it is expected to keep rates on hold at 7 percent. “Temporarily they are out of the firing line and safe with just delivering a hawkish message,” said Hulea.
More important for investors were upcoming ratings reviews, particularly those from Fitch and S&P next Friday, she said.
“They have them on the cusp of a downgrade to below investment grade, and investors want to see if they postpone given what’s been happening on the political front or if they just go ahead.”
The Russian rouble was also steady, helped by oil prices edging back above $49 a barrel. But the Brazilian real lost 1.24 percent.
The benchmark emerging equity index fell 0.5 percent, in the red for a second day, with the big Asian manufacturing markets leading the losses.
Korean stocks lost 0.8 percent, Taiwan shares slipped 0.3 percent and Indonesian stocks tumbled as much as 2.1 percent.
But emerging Europe fared better with Warsaw shares up 0.6 percent and Russian dollar-denominated stocks up 0.9 percent.
For GRAPHIC on emerging market FX performance 2016, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2016, see http://tmsnrt.rs/2dZbdP5 For GRAPHIC on global currency performance against the dollar, year to date, see http://tmsnrt.rs/2egbfVh
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 852.92 -3.00 -0.35 +7.40
Czech Rep 888.10 -0.62 -0.07 -7.13
Poland 1804.78 +8.15 +0.45 -2.92
Hungary 30192.21 +35.92 +0.12 +26.22
Romania 6826.16 -12.11 -0.18 -2.54
Greece 623.79 -8.73 -1.38 -1.20
Russia 1025.23 +8.28 +0.81 +35.43
South Africa 43941.04 -135.84 -0.31 -4.05
Turkey 75027.27 -9.63 -0.01 +4.60
China 3241.49 +0.35 +0.01 -8.41
India 25832.22 -219.59 -0.84 -1.09
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.02 27.01 -0.03 -0.07
Poland 4.42 4.43 +0.09 -3.75
Hungary 310.25 310.02 -0.07 +1.41
Romania 4.51 4.51 +0.01 +0.28
Serbia 123.27 123.24 -0.02 -1.46
Russia 64.33 64.36 +0.05 +13.40
Kazakhstan 335.70 335.62 -0.02 +1.43
Ukraine 25.55 25.59 +0.16 -6.25
South Africa 14.09 14.14 +0.33 +9.74
Kenya 101.80 101.80 +0.00 +0.39
Israel 3.87 3.86 -0.21 +0.41
Turkey 3.40 3.39 -0.35 -14.30
China 6.92 6.92 +0.06 -6.12
India 68.71 68.77 +0.09 -3.66
Brazil 3.44 3.39 -1.24 +15.24
Mexico 20.62 20.64 +0.08 -16.72
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 385 0 .01 7 28.23 1
All data taken from Reuters at 09:56 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Additional reporting by Sujata Rao)