LONDON: A tumble in Chinese and Hong Kong shares after recent surges pushed emerging equities lower on Thursday, though Turkey's lira firmed for a second day against the weak dollar, helped partly by comments from an adviser to the Turkish president.
Emerging currencies have broadly benefited from the weaker dollar, which has been on the backfoot since US Federal Reserve minutes suggested a dovish path ahead given weak inflation.
The lira, which hit record lows this week, firmed for the second day, lifted by the dollar as well as comments from an adviser to President Tayyip Erdogan, who told Reuters interest rates could be raised at any time and suggested Erdogan would respect central bank independence.
The South African rand - the other emerging markets weak link - pulled back half a percent before a central bank meeting. It had firmed to one-month highs on Wednesday.
The bank will likely hold interest rates but markets expect rate rises to resume next year, given that potential ratings downgrades to junk for local debt - possibly as soon as Friday - will fuel investment outflows.
ING Bank analysts said the ratings decisions remained key for the currency, which they predicted would test 15 per dollar, down from current levels around 13.9, in event of downgrade.
"Expect the (central bank) to sound conservative, fearful of a rand collapse and being drawn into another FX sell-off, inflation and tightening cycle as has been seen in Turkey over recent years," the analysts told clients.
On emerging stock markets, which have hit six-year highs recently, there were some reversals, led mainly by Asia, where Hong Kong shares fell one percent from decade-highs, as a sudden selloff in mainland China fed through.
MSCI's emerging equity index fell 0.25 percent
Chinese onshore markets fell 3 percent for their biggest one-day loss in 18 months, hit by worries about a bond market selloff triggered by authorities' efforts to reduce financial sector risks.
The yield on Chinese 10-year Treasury bonds touched a three-year high of 4.03 percent, having risen almost 40 basis points since the end of September while corporate bond yields also rose.
"Three-month SHIBOR" is on the rise for the 33rd day in a row, obviously adding pressure on liquidity and headwinds to equities," said Karine Hirn, partner at investment firm East Capital in Hong Kong, referring to the Shanghai Interbank offered rate, which is at the highest since June.
She said there was also an element of profit-taking following recent strong gains. The onshore market is up around 25 percent since the start of 2017.
The yuan rose to the highest in three weeks after a stronger official fixing.
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