(There will be no London-based emerging markets report on Monday, May 28 due to a UK public holiday)
By Claire Milhench
LONDON, May 25 (Reuters) - Emerging stocks rose on Friday as North Korea’s conciliatory tone helped sentiment recover after U.S. President Donald Trump called off a key summit, but Turkey’s lira laid low following its worst week since 2009.
MSCI’s benchmark emerging equities index rose 0.3 percent, but was set to end the week up just 0.2 percent after new protectionist threats from the United States and an about-turn from Trump on North Korea knocked sentiment.
However, with North Korea saying it was open to resolving the stand-off over its nuclear weapons programme, and U.S. 10-year Treasury yields in retreat, risk appetite returned for some emerging market assets.
The Indian rupee rebounded 0.8 percent from a near 16-month low and stocks rose 1 percent after coming under pressure in recent days due to higher oil prices. A fall in crude futures to below $78 a barrel has provided some respite for the big energy importer.
Turkey’s lira also made tentative gains against the dollar in early trade but then retreated 0.3 percent after a volatile week in which Turkey’s central bank was forced to raise its top interest rate by 300 basis points to 16.5 percent to put a floor under the freefalling currency.
The sustained sell-off was driven by investor concerns about the central bank’s ability to tame double-digit inflation. President Tayyip Erdogan is fiercely opposed to high interest rates and has vowed to assert more policy control after the June 24 parliamentary and presidential elections.
Guido Chamorro, an emerging market debt portfolio manager at Pictet Asset Management, said big rate hikes were “pretty powerful policy tools”, and if they were big enough they usually worked.
“The problem is if it is not big enough you have to come back to the market. We saw that in Argentina, which did it in stages,” he said. “In the case of Turkey, the jury is still out. The next couple of days are going to be quite crucial.”
Turkish Deputy Prime Minister Mehmet Simsek acknowledged that the central bank had been late raising rates but added it would do whatever was necessary and had the full support of the government.
The lira is still set to end the week down over 5 percent, its fourth losing week in a row and its worst week since 2009. For the month to date the lira is already down over 16 percent, its worst performance since October 2008, after hitting successive record lows.
However, the average yield spread of Turkish sovereign dollar-denominated bonds over U.S. Treasuries on the JPMorgan EMBI Global have narrowed from a peak of 420 basis points (bps) on Monday to 390 bps, an 11-day low.
Turkish stocks rose 1.5 percent and were set to end the week flat.
Other emerging currencies retreated, hindered by a firmer dollar, which rose 0.2 percent against a basket of currencies.
The South African rand also fell 0.5 percent after the central bank held rates at 6.5 percent as expected on Thursday, while saying it saw upside risks to consumer inflation.
John Ashbourne, Africa economist at Capital Economics, warned the next move was more likely to be a cut than a hike.
“We think that inflation will remain within target next year, and that policymakers will be keen to provide a bit more support to the economy, which we expect will be slowing,” he said in a note.
Investors are also awaiting ratings reviews on the country’s debt by S&P Global and Fitch, expected after the market close.
S&P Global cut South Africa’s local currency debt rating to “junk” status in November and said in March that it would be nowhere near upgrading until reforms under new President Cyril Ramaphosa took shape.
China’s yuan dipped 0.2 percent to hover around four-month lows and Chinese mainland stocks fell 0.4 percent. Both the Shanghai Composite and the blue chip CSI300 index were set for their worst weeks since late April, down 1.6 percent and 2.2 percent respectively.
Chinese assets have been hit by the U.S. decision to call off the June summit with North Korea, and concerns about a U.S. investigation into car and truck imports.
The worry is this will lead to new U.S. tariffs similar to those imposed on imported steel and aluminium in March. The move has drawn strong criticism in the United States and abroad.
In emerging Europe, Hungary’s forint continued its slide against the euro, down 0.2 percent to hit a fresh 23-month low. The Hungarian central bank is seen as one of the most dovish in emerging markets.
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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1138.24 +3.18 +0.28 -1.74
Czech Rep 1100.66 -2.76 -0.25 +2.09
Poland 2213.62 +0.36 +0.02 -10.06
Hungary 36078.47 +185.85 +0.52 -8.38
Romania 8298.70 +34.26 +0.41 +7.03
Greece 771.59 +0.70 +0.09 -3.84
Russia 1183.00 +9.37 +0.80 +2.47
South Africa 50430.21 +84.71 +0.17 -4.00
Turkey 02792.30 +1654.22 +1.64 -10.87
China 3142.17 -12.48 -0.40 -4.99
India 34973.64 +310.53 +0.90 +2.69
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.81 25.78 -0.12 -1.09
Poland 4.30 4.31 +0.13 -2.96
Hungary 319.54 319.04 -0.16 -2.82
Romania 4.63 4.63 -0.03 +1.08
Serbia 118.11 118.09 -0.02 +0.25
Russia 61.58 61.56 -0.02 -6.36
Kazakhstan 327.81 325.96 -0.56 +1.52
Ukraine 26.14 26.11 -0.11 +7.67
South Africa 12.48 12.42 -0.52 -0.98
Kenya 101.05 101.00 -0.05 +2.03
Israel 3.56 3.56 +0.02 -2.37
Turkey 4.72 4.71 -0.36 -19.78
China 6.39 6.38 -0.17 +1.88
India 67.79 68.33 +0.80 -5.84
Brazil 3.65 3.65 +0.00 -9.24
Mexico 19.54 19.56 +0.10 +0.54
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 347 0 .05 7 75.99 1
Reporting by Claire Milhench; additional reporting and graphic by Marc Jones Editing by Mark Heinrich