Emerging stocks fell yesterday as a week-long rally ran out of steam, but were still on track to end the week up over 4%, whilst Turkish assets remained pressured by fears of escalating violence after Wednesday’s Ankara car bomb attack.
Turkey is blaming Kurdish militants for the attack, and has vowed retaliation in both Syria and Iraq. Turkey’s foreign minister has also accused Russia of war crimes in Syria in an ongoing war of words.
Spreads on Turkish sovereign dollar bonds over US Treasuries on the JP Morgan EMBI Global have widened by 11 basis points (bps) since Wednesday’s attack.
The Turkish lira has also come under pressure and is still trading near three-week lows hit on Wednesday, whilst Turkish stocks slipped 0.2%.
“The weakness in the Turkish market is clearly related to what is going on in Syria, the tensions between Turkey and Russia and the terrorist attacks - the underperformance can only be explained by this factor,” said Murat Toprak, FX strategist at HSBC.
Ukraine’s restructured dollar bonds fell across the curve, with the 2027 issue slipping up to 1.4 cents in early trading after the ruling coalition lost its majority. The hryvnia also came under selling pressure, weakening 1.7% against the dollar.
Alex Brideau, a director at Eurasia, said negotiations to form a new coalition would probably take up much of the next month, keeping major policy decisions on hold. “It is unlikely Ukraine will receive its next $1.7bn loan tranche until after the coalition issue is resolved,” he wrote.
The benchmark emerging equity index slipped 0.6% retreating from a six-week high hit overnight, taking its cue from lower oil prices, which soured investor sentiment.
Toprak said that the correlation between oil prices and EM equities that has driven markets since January was still in play, and it was not surprising to see some consolidation at the end of the week after a strong rally.
Russian dollar-denominated stocks were amongst the biggest fallers, down more than 2%, but the rouble firmed 0.2% as exporters selling foreign currency for upcoming tax payments tempered the impact from falling oil prices. Kazazkhstan’s tenge weakened 0.7%.
The Czech crown slipped slightly against the euro after central bank vice governor Mojmir Hampl said that weakening the crown further would be “the first line of defence” if the bank needed to ease monetary policy. Moody’s will review the Czech sovereign rating later on Friday.
The Hungarian forint firmed a touch against the euro after wages surged 5.7% in December.
Argentina’s sovereign dollar bond spreads rose as much as 6 bps on the day to 467 bps after a group of holdout creditors suing Argentina over defaulted bonds urged a US judge to reject the country’s request to lift orders restricting it from servicing its restructured debt.
Earlier in Asia, the Korean won slipped 0.4%, trading around a five-and-a-half year low, despite a suspected $2bn intervention by the authorities to slow its decline. The central bank and the finance ministry also issued a stern warning against herd behaviour.