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Emerging markets slump on Trump travel ban

Jan 30 2017 15:57
Ahmed A. Namatalla and Paul Wallace

Cairo - Emerging-market stocks and currencies fell as US President Donald Trump’s immigration curbs fanned geopolitical and trade concerns, crimping investor appetite for higher-yielding assets. Turkish markets brushed off a sovereign downgrade last week.

The rand led currencies lower amid speculation President Jacob Zuma is on the verge of firing his finance minister. Egyptian, Russian and Pakistani stocks paced the retreat among equities. Turkey’s lira snapped four days of losses, erasing declines on Friday when Fitch Ratings cut the nation to junk.

Trump applied the restrictions to seven Muslim-majority countries, sparking protests across American cities and drawing condemnation from world leaders and companies including Microsoft and Starbucks. The US Administration said the measures are a necessary step to protect against terrorism.

"He’s had this extraordinary honeymoon, where Wall Street has discounted all of the negative aspects of what a Trump presidency may do in terms of trade," Richard Fenning, Control Risks Group’s chief executive officer, said in an interview with Bloomberg TV in Dubai. "They’ve ignored many of these aspects we’re now starting to see, which are going to be negative in terms of corporate interest.”

Asian markets, including China, Malasia, South Korea and Taiwan, are closed for for Lunar New Year.

Stocks

MSCI’s gauge of emerging stocks fell 0.5%, the most on a closing basis in two weeks. Russia’s Micex Index dropped from the highest level in almost four weeks, losing 1.2%.

President Vladimir Putin, who spoke with Trump this weekend, shouldn’t expect significant relief from US sanctions this year, according to a new Bloomberg survey of economists.

Turkey’s Borsa Istanbul 100 Index climbed 2.4%, set for the highest close since April. Pakistan’s KSE 100 Index’s 2% loss was the biggest in emerging markets and the most since June. Egypt’s EGX 30 Index declined 1.5%.

Currencies

The MSCI Emerging Markets Currency Index fell 0.3%. Turkey’s lira climbed 1.4% to 3.8161 versus the dollar, set for its biggest gain in more than a week. The rouble lost 0.4% to 60.0425 per dollar. The rand fell 1.1% to R13.6053/$. Brazil’s real retreated 0.1%. The nation’s top court approved Odebrecht SA’s plea bargains.

Bonds

The yield on Ukraine’s 2026 bonds rose for a fourth day, jumping 11 basis points to 8.88%, the highest level in more than a month. The yield on South Africa’s rand-denominated 2026 bonds advanced nine basis points, the most in more than a month, to 8.95%.

Analysis

“Now that Fitch downgraded, Turkey doesn’t have any investment grade and doesn’t need to worry about losing more - therefore, the worst may be over,” Firat Topal, a director of emerging markets sales & sales trading at Vienna-based Raiffeisen Centrobank, said by e-mail.

“There is an expectation that USDTRY may fall back to the 3.50-3.60 range, also partly due to the broader prospect that the dollar index is likely to decline, which is supporting Turkish assets now. Investors don’t want to be left out of the rally in case that happens.”

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