Emerging markets: Lira extends gains, regulatory worries hit Chinese internet stocks

Rand drops to two-week low.
An assortment of Turkish Lira banknotes. Image: Chris Ratcliffe, Bloomberg

Emerging market stocks fell 0.8% on Wednesday as Chinese internet and gaming companies sank, while Turkey’s lira extended a relief rally even as tensions with the West persisted.

Most other EM currencies slipped, pressured by rising U.S. Treasury yields. Asian currencies were flat to lower, while falling oil prices saw Russia’s rouble snap three days of gains, down 0.4%. South Africa’s rand dropped 0.7% to hit a two-week low.

The lira rose 0.7% to 9.47 to the dollar, moving further away from the near 10 level hit on Monday when President Tayyip Erdogan said he had ordered the expulsion of the ambassadors of the United States and nine other Western countries.

A de-escalation of tensions since then has helped the lira recover. But Ankara’s purchase of NATO-incompatible Russian defence systems has stoked the tension once again, with U.S. lawmakers urging President Joe Biden’s administration not to sell F-16 fighter jets to Turkey.

Any respite for the lira will prove temporary, also given the country’s uncertain and unconventional monetary policy, said Cristian Maggio, head of portfolio strategy at TD Securities. “Our forecasts are 9.15 in Q4 and 9.75 in Q1 2022.”

Commerzbank, meanwhile, revised its March 2022 forecast for the lira/dollar pair to 11.00 from 10.00.

Data on Wednesday showed Turkey’s foreign trade deficit narrowed 47.5% year-on-year in September, but the country’s economic confidence index dropped 1% month-on-month in October.

EM stocks were set for their worst session in two weeks as heavy-weighted China blue-chips and Hong Kong stocks fell well over 1%.

Internet and gaming companies such as Tencent, NetEase, Baidu and Meituan slid between 1.7% and 5% as Beijing stepped up oversight of internet firms, which it has criticised over issues from infringing consumer rights to feeding the gaming addiction of the young.

Amid worries about slowing growth in China, earnings for China’s power utilities during the first three quarters of 2021 plunged as the companies were squeezed by surging coal costs that they could not pass on to consumers.

But, on a month-on-month basis, profits at China’s industrial firms rose at a faster pace in September.

Worries around China Evergrande Group persisted with the cash-strapped property developer’s next payment deadline coming up on Friday.

Late on Tuesday, China’s National Development and Reform Commission said that it and the State Administration for Foreign Exchange had met with foreign debt issuers, advising them to use funds for approved purposes and “jointly maintain their own reputations and the overall order of the market”.

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