Emerging Markets Drop as Trump Travel Ban Curbs Risk Appetite

  • Russia stocks, ruble fall; poll sees limited sanctions relief
  • Turkey’s lira climbs back after Friday’s Fitch Downgrade

U.S-Mexico Trade: Impact on Emerging Markets

Emerging-market stocks and currencies fell as U.S. 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.

South Africa’s 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 Corp. and Starbucks Corp. The U.S. 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.

SURVEY: Trump to Bring Limited Russia Sanctions Relief This Year

Stocks

  • MSCI’s gauge of emerging stocks fell 0.5 percent, 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 percent. President Vladimir Putin, who spoke with Trump this weekend, shouldn’t expect significant relief from U.S. sanctions this year, according to a new Bloomberg survey of economists.
  • Turkey’s Borsa Istanbul 100 Index climbed 2.4 percent, set for the highest close since April.
  • Pakistan’s KSE 100 Index’s 2 percent loss was the biggest in emerging markets and the most since June.
  • Egypt’s EGX 30 Index declined 1.5 percent.

Currencies

  • The MSCI Emerging Markets Currency Index fell 0.3 percent.
  • Turkey’s lira climbed 1.4 percent to 3.8161 versus the dollar, set for its biggest gain in more than a week.
  • The ruble lost 0.4 percent to 60.0425 per dollar.
  • South Africa’s rand fell 1.1 percent to 13.6053 per dollar.
  • Brazil’s real retreated 0.1 percent. 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 percent, 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 percent.

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 AG, 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.”

What to Watch

  • For data and events, see Asia Daybook, India Daybook, Taiwan Daybook, Middle East Daybook, Russia Daybook, Africa Daybook, South Africa Daybook.

— With assistance by Tugce Ozsoy

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