Emerging Currencies, Stocks Gain as Turkey Rally Outweighs China

  • Turkish lira jumps most since 2008 after AKP wins election
  • Shanghai stocks retreat after PMI shrinks for third month

The lira strengthened the most since 2008 and Turkish equities surged after the party co-founded by President Recep Tayyip Erdogan swept back into power, outweighing declines in Asia as disappointing Chinese manufacturing data underscored the risks facing emerging markets.

The 3.2 percent gain in the lira pushed it to the strongest level against the dollar since mid-August. The Borsa Istanbul 100 Index rallied 5.4 percent, the best performance among 93 primary equity benchmarks worldwide. The AK Party took about 49 percent of the vote in Sunday’s parliamentary elections. The Shanghai Composite Index declined for a second day after China’s official purchasing managers index stayed unchanged at 49.8 in October, showing industrial output shrank for the third month. The yuan fell 0.3 percent.

The Chinese data shed light on the slow pace of growth in the world’s second-biggest economy, dimming the outlook for demand from countries that rely on exports to China for a large proportion of their trade. Coupled with increasing odds that the Federal Reserve will start raising interest rates in December, some investors are reconsidering the potential upside for riskier assets after stocks and currencies had their best monthly rally since April last month.

ETF Outflows

“The AKP majority is clearly a positive and it was a surprise, so risk sentiment will be supported in the short term for Turkish assets in particular,” said Michael Ganske, who helps oversee $4.5 billion of debt and currencies as head of emerging markets at Rogge Global Partners in London. U.S. jobs data due for release this week “should give guidance on if the Fed would consider lifting off in December. So, there is more of wait-and-see for the coming days,” he said.

Ganske favors currencies of Russia, Hungary, the Philippines and Mexico against the dollar. Investors pulled money out of U.S. exchange-traded funds that invest in emerging markets last week for the first time since early October. Redemptions totaled $91.3 million compared with inflows of $1.1 billion in the previous week and $2.58 billion in the past three periods, according to data compiled by Bloomberg.

A gauge of 20 developing-nation currencies rose 0.2 percent, gaining for a second day. India’s rupee and the Hungarian forint weakened, while the Mexican peso gained 0.4 percent. The Shanghai Composite Index fell for the second day after China’s official purchasing managers index stayed unchanged at 49.8 in October, showing industrial output shrank for the third month.

Stocks Gain

The MSCI Emerging Markets Index rose 0.3 percent to 850.23 as seven of 10 industry groups gained. The measure’s 7 percent advance last month lifted the average price-to-earnings ratio of the gauge to 11.3 times projected 12-month earnings, representing a 30 percent discount to developed-country shares on the MSCI World Index.

The lira strengthened to 2.8249 per dollar. Societe Generale SA said it could rally to 2.72. The AK Party’s win heralds the end of a political standstill that began in June, when it lost its majority for the first time since 2002.

“There is relief about political predictability in Turkey," Aurelija Augulyte, a senior foreign-exchange strategist at Nordea Bank AB in Copenhagen, said by e-mail. “I don’t like the lira from here, I think the reaction is temporary.”

Markets in Brazil were closed for a holiday.

China Slump

While stock indexes in Dubai and Thailand advanced at least 1.3 percent, Indian shares extended declines for the sixth day. Russia’s ruble gained 0.5 percent after climbing on Friday as the central bank left benchmark interest rates unchanged. Russian oil output broke a post-Soviet record in October for the fourth time this year. The rupee weakened 0.5 percent.

The Shanghai Composite Index retreated to the lowest level since Oct. 21. The Hong Kong Hang Seng China Enterprises Index slid 1.5 percent, capping a fifth day of declines, its longest streak since Sept. 7. Bank of China Ltd. decreased 2.7 percent. The median estimate was for PMI to recover to 50, the line between expansion and contraction.

Chinese shares also lost ground as police raided hedge fund Zexi Investment on Sunday, according to a person familiar with the matter. The 26 companies that Zexi disclosed as a shareholder in the past 12 months fell by an average of 4.5 percent on Monday.

Samsung Electronics rose 0.8 percent after the company said it plans to buy back and cancel 11.3 trillion won ($9.9 billion) of shares. The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed five basis points to 388 basis points, according to JPMorgan Chase & Co. indexes.

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