Alibaba weights EM shares; Turkish lira companies by rout

  • Lira back below 11 / dollar, other major EMEA FX also fixed
  • Turkey could be used as a bearish excuse for EM assets – VanEck
  • S&P, Moody’s will review S.African credit rating
  • EM shares are expected to end the week down around 1%

Nov 19 (Reuters) – Turkey’s lira staged a preliminary comeback on Friday, at the end of a brutal week as stock markets plummeted, led by a 10% drop in e-commerce giant Alibaba after it downgraded its sales prospects.

Other EM currencies also got a bit of a respite after a few days with bruises marked by a strong dollar, the prospect of higher core interest rates as well as the lira faltering.

Russia’s ruble rose from its lowest level in almost two months, while the South African rand strengthened up to 0.8% before trading flat. The South African Reserve Bank on Thursday delivered its first rate hike in over three years.

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The lira strengthened up to 1.7%, moved back below 11 to the dollar and suffered an eight-day losing streak, losing almost 12%. Read more

It hit a record low of 11.3 against the dollar on Thursday as it fell 6% after the central bank ignored rising inflation to bow to political pressure, lowering the key interest rate by 100 basis points to 15% and signaling another drop in the next month. Read more

Turkish opposition leaders called for immediate early elections after the meltdown of the lira. Lira-implied volatility remained high as dollar bonds stabilized.

The impact of a currency crisis in Turkey would be limited because EM currencies do not appear to need a significant adjustment and as foreign investors have reduced their exposure to Turkey after years of erratic policy-making and crises, said Shilan Shah, senior economist at Capital Economics.

But there are concerns that developments in Turkey will be used as a bearish excuse for other EM assets – especially in light of the worsening growth disparities between EM and developed markets, according to Natalia Gurushina, EC interest rate economist at VanEck.

EM real dividends

JPMorgan underweighted currencies in emerging Europe, the Middle East and Africa due to the prospect of more entrenched inflation as well as higher core bond yields in developed markets. Read more

S&P Global and Moody’s were to review South Africa’s credit rating later on Friday.

“It is likely that Finance Minister Enoch Godongwana’s latest (mid-term budget) is sufficient to ward off further downgrades at this point,” RBC analysts said in a note.

EM shares (.MSCIEF) fell 0.2% on Alibabas (9988.HK) drop. The company referred to increased competition and a regulatory reduction. The EM benchmark is heading for weekly losses of more than 1%.

The fund flows into EM shares and bonds

For GRAPHICS on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh

For GRAPHICS on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Susan Mathew in Bengaluru Editing by Mark Heinrich

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