Emerging-Market Currency Price Swings Widen as Lira Bounces Back

How Far Can Turkish Lira Weaken vs. U.S. Dollar?
  • Polish zloty, bonds advance after Fitch affirms credit rating
  • Turkish stocks drop, offsetting gains in Asia, Latin America

A rebound in the Turkish lira after a failed coup attempt helped boost some developing-nation currencies that were hurt by the turmoil as a gauge of exchange-rate volatility rose from an 11-month low.

The lira gained 1.3 percent, following a 4.6 percent plunge on Friday, buoying currencies such as South Africa’s rand. The JPMorgan Emerging Market Volatility Index, a gauge of price swings, jumped 1.8 percent from the lowest since August 2015. Turkish stocks, which weren’t trading at the time of the attempted coup, had their biggest drop in three years. Malaysia Airports Holdings Bhd., which owns an Istanbul airport, fell the most since February.

Turkish officials promised over the weekend unlimited liquidity to lenders and measures to support the lira as thousands of Turkish army officers and judges were swept up in a nationwide wave of arrests. Before the coup attempt, Turkey had been eastern Europe’s second-strongest stock market of the year with a 15 percent gain, helped by speculation that global interest rates would remain low and optimism over President Recep Tayyip Erdogan’s move to repair ties with Russia and Israel.

The situation in Turkey “could lead to more uncertainty,” said Mitul Kotecha, head of Asia currency and rates strategy at Barclays Plc in Singapore. “There are still questions on the growth impact and security as well, internally and externally, given this crackdown we’re seeing within the country.”

Lira Rebound

The lira strengthened to 2.9773 per dollar. The Borsa Istanbul 100 Index plunged 7.1 percent in its biggest one-day drop since June 2013. The yield on Turkey’s dollar bond due February 2045 rose 21 basis points to 5.24 percent.

The MSCI Emerging Markets Currency Index fell 0.1 percent, extending its retreat from an 11-month high reached on July 14. The Bloomberg Dollar Index, which tracks the greenback against a basket of peers, rose less than 0.1 percent, adding to a 0.4 percent gain on Friday. 

“You’re going to have short-term pull-backs, but I don’t see a material pick-up in emerging-market volatility,” said Tim Love, a money manager at the U.K. unit of GAM Holding AG. His fund is overweight on China, Brazil and Russia. “Turkey is a small country in MSCI terms, and the bigger direction of travel for EM is driven by the search for yield.”

Poland Rating

The zloty strengthened 1.3 percent against the euro after Fitch Ratings on Friday affirmed Poland’s A- credit grade and forecast a budget deficit in line with the government’s projection. The currency weakened 1.2 percent in the previous session.

The rand rebounded 2.4, recouping all of its losses from Friday. Mexico’s peso and Russia’s ruble each rose at least 1 percent, resisting the effect of a 1.4 percent decline in Brent crude to $46.96 a barrel. Shipments continued through Turkey, seen as a vital conduit for oil from Russia and Iraq to the Mediterranean Sea. The real gained 1.1 percent as a poll showed Brazilians’ optimism with the economy rose to the highest since December 2014.

The Malaysian ringgit weakened 0.8 percent. South Korea’s won fell 0.3 percent. China’s currency dropped 0.2 percent as the fixing was reduced to 0.23 percent in the biggest cut since July 6.

The MSCI Emerging Markets Index increased 0.3 percent to 870.13. Eight of 10 industry groups advanced, led by technology stocks. Investors added more than $3.6 billion to exchange-traded funds that buy emerging-market equities and bonds last week, a record in data going back more than two years.

The Ibovespa advanced 1.6 percent in Sao Paulo. Mexico’s benchmark IPC Index added 0.5 percent.

Gauges in Taiwan and Chinese shares listed in Hong Kong increased at least 0.5 percent. The Shanghai Composite Index declined 0.4 percent, after rising for three consecutive weeks, as developers dropped on signs China’s property market is cooling.

Polish bonds rose for the first time in a week, sending the yield on five-year notes down three basis points to 2.25 percent. South African and Russian debt declined, with yields on 10-year bonds in both countries increasing at least five basis points.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries rose one basis point to 351 from the narrowest in a year on Friday, according to JPMorgan Chase & Co. indexes.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE