LONDON: Emerging markets looked to end the week on a cautiously positive note on Friday with stocks poised to snap a four-week losing streak while a number of currencies pulled away from record lows thanks to the dollar taking a break from its relentless rally.
Emerging assets have suffered since Republican Donald Trump's unexpected election victory led to a major repricing of assets, with investors pushing the dollar to a 13-1/2 year high and sending US Treasury yields soaring in anticipation that increased infrastructure spending would push up inflation.
India's rupee, which had hit a record low on Thursday, strengthened 0.5 percent against the dollar after the Indian central bank intervened heavily in morning trade when the currency looked set to weaken again.
Turkey's lira strengthened 0.2 percent on the day, but only after hitting yet another record low in early trading.
Turkey had raised interest rates for the first time in nearly three years on Thursday, hiking its benchmark rate by a more-than-expected 50 basis points as concerns about the tumbling currency outweighed President Tayyip Erdogan's calls for cheap credit.
However, both currencies were on track for weekly losses, the lira for the fifth week in succession.
"The rise in US yields as a result of (Trump's) expansionary fiscal agenda will be long-lasting and present a headwind for emerging market assets," Andreas Johnson, economist at SEB wrote in a note to clients.
"In response, emerging market central banks will soon follow the US Fed and hike rates - (Mexico's) Banxico and the central bank of Turkey already have - causing yield spreads to narrow and the rout to stall."
In South Africa, the rand weakened 0.2 percent with investors showing nerves ahead of ratings agencies' latest assessments, which could see the country downgraded to junk next week and push up its borrowing costs.
Moody's will review its Baa2 rating, which is two notches above sub-investment grade, later on Friday. S&P and Fitch, which rate South Africa just one rung from junk, are expected to give their verdicts next week, on Friday.
"I am hesitant to say that a downgrade would trigger a major immediate sell-off - but I think it is not going to help sentiment in the medium term, it won't help foreign direct investment flows," said Nazmeera Moola, co-head of fixed income at Investec Asset Management.
Meanwhile, emerging stocks looked on track to snap a four-week losing streak. MSCI's emerging markets benchmark gained 0.4 percent on the day, lifted by solid gains in Asia, and was up 1.3 percent on the week.
<Center><b><i>Copyright Reuters, 2010</b></i><br></center>
Comments
Comments are closed for this article.