LONDON, Sept 26 (Reuters) - Turkish stocks, bonds and the lira sold off on Monday after a credit rating downgrade to junk while rising unease over U.S. politics and a meeting of oil exporters spurred broader emerging markets weakness.
Late on Friday, Moody’s cut Turkey’s sovereign rating to ‘junk’, citing worries about the rule of law after a failed putsch and risks from a slowing economy in a move which could push up the costs of borrowing for the country.
Stocks in Istanbul dropped 4 percent, dollar-denominated bonds slipped across the curve while local bond yields rose into double-digit territory and the lira weakened around 1 percent against the dollar.
The assets later recovered some of the losses.
“You’ve had the coup, you have had various terrorist attacks, you have a central bank that is cutting interest rates and it is far from clear...that it should be cutting rates and then the downgrade,” said Paul Fage, senior emerging market strategist at TD Securities.
“But that said, (Turkish assets) did not get killed by any stretch of imagination and would have given investors positive returns since the start of the year, and that is a reflection of its high carry-currency and that we are still in a reasonably risk-on environment for EM.”
JPMorgan, which runs the most widely used emerging debt indexes, estimated earlier this year that a cut to junk could force funds to dump around $10 billion worth of Turkish bonds with over 10 percent of hard currency Turkish debt at risk of forced selling
Emerging stocks also suffered. MSCI’s index fell 1.3 percent - the steepest daily loss in two weeks - as focus switched from central banks to American politics ahead of the first U.S. presidential debate later in the day.
On currency markets Russia’s rouble was trading flat against the dollar as oil prices rose 0.5 percent following a 4 percent drop on Friday.
OPEC and other big oil producers start a meeting in Algeria later in the day where they will discuss a possible output-limiting deal.
Israel’s shekel weakened 0.2 percent ahead of a central bank meeting where policy makers are expected to leave interest rates unchanged for the 19th straight month after data showed economic growth remains healthy even as a deflation trend persists.
In central and eastern Europe, Polish stocks led losses on bourses across the region, down 1.6 percent and extending losses posted since Polish Prime Minister Beata Szydlo said on Friday that she would reshuffle her government.
The forint eased 0.2 percent to the euro, pulling back from 16-month highs amid some unease caused by a blast on the weekend in Budapest, while Hungarian stocks fell 0.7 percent to one-week lows.
Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 906.38 -11.12 -1.21 +14.13
Czech Rep 866.18 -7.87 -0.90 -9.43
Poland 1736.32 -26.16 -1.48 -6.61
Hungary 27932.28 -187.81 -0.67 +16.77
Romania 6960.55 -39.72 -0.57 -0.62
Greece 565.15 -8.90 -1.55 -10.49
Russia 984.74 -9.20 -0.93 +30.08
South Africa 44671.53 -768.70 -1.69 -2.46
Turkey 76585.92 -3170.53 -3.98 +6.77
China 2981.25 -52.65 -1.74 -15.76
India 28299.96 -368.26 -1.28 +8.36
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.01 27.00 -0.02 -0.03
Poland 4.30 4.30 -0.06 -1.05
Hungary 306.50 305.81 -0.23 +2.66
Romania 4.45 4.45 +0.02 +1.64
Serbia 123.02 123.16 +0.11 -1.26
Russia 64.01 63.97 -0.05 +13.97
Kazakhstan 337.40 337.87 +0.14 +0.92
Ukraine 25.87 25.93 +0.23 -7.41
South Africa 13.68 13.71 +0.21 +13.02
Kenya 101.15 101.10 -0.05 +1.04
Israel 3.76 3.76 -0.14 +3.29
Turkey 2.98 2.97 -0.51 -2.17
China 6.67 6.67 +0.01 -2.65
India 66.69 66.70 +0.01 -0.74
Brazil 3.24 3.24 +0.03 +22.09
Mexico 19.82 19.78 -0.19 -13.36
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 360 4 .23 7 70.00 1
All data taken from Reuters at 09:24 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
For GRAPHIC on emerging market FX performance 2016, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2016, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2016, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2016, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Additional reporting by Sujata Rao; editing by Susan Thomas)