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Turkey's lira falls following Thursday's rate outlook. Picture: Simon Dawson/Bloomberg
Most emerging market stocks slipped on Friday and were on course to end lower for the first time in four weeks, while higher yielding debt among developing countries stabilised following jitters in Argentina overnight.
Weakness among Asian equities early in the day set a negative tone and MSCI’s index of developing world stocks was 0.1% lower. Shares in mainland China , South Korea and Taiwan fell in a range of 0.5% to 1.3%.
Chinese shares have been plagued this week by concerns that the government may trim measures aimed at supporting the economy, with the Shanghai Composite posted a weekly loss of 5.6%, its worst since mid-October, 2018.
Gareth Leather, a senior economist with Capital Economics, said Chinese authorities would be more cautious with additional stimulus measures, considering “lower trend growth” and a desire not to undermine local de-leveraging efforts.
Yields on emerging market local currency sovereign debt have risen for a fourth straight day, for the first time since early October, data from JP Morgan showed.
Fears of emerging market contagion fuelled by a mass sales of Argentine bonds on Thursday eased. Kenyan bonds recovered after their yields shot to around two and a half month highs of more than 7.5% on Thursday due to the contagion fears as well as news of a new bond sale.
Turkish equities dipped 0.2%, pressured by consumer discretionary stocks and industrials, while the lira slipped 0.1%.
The Turkish central bank kept borrowing costs unchanged on Thursday, as expected, but removed a reference to possible monetary tightening in the future, sparking a spate of sell orders on the lira, which is set to end the week down about 2%.
Societe Generale’s head of EM strategy, Jason Daw, said the bank’s “surprisingly less hawkish tone… could add fuel to the fire.”
Russia’s rouble was little changed, while stocks shed half a% on weakness among financials and energy stocks.
The Russian central bank is expected to leave interest rates unchanged at 7.75% later today but investors are keen to glean hints on the future path that borrowing costs will take.
“The first rate cut by CBR could arrive in September, sooner than our current base-case of November,” wrote Commerzbank analysts in a note.
Broadly higher oil prices this week have supported the currency against the threat of more U.S. sanctions.
South Africa’s rand rose 0.2%, while stocks slid 0.4%.Source: Reuters