EMERGING MARKETS-Stocks fall, Turkey’s lira records new low after rate hike miss

Emerging markets equities fell after the U.S. Federal Reserve’s hawkish tone sparked investor fears over further rate hikes, while Turkey’s lira hit a fresh low after the country’s central bank rate hike came in below market expectations.

MSCI’s emerging markets stocks index was down 0.9% by 0905 GMT, and was set for its biggest weekly loss in over eight months. The Turkish lira recorded a fresh low of 25.59 against the dollar, a day after the country’s central bank raised its key rate by 650 basis points to 15% on Thursday, falling short of expectations.

At 25.59, the lira was nearly 27% weaker against the dollar this year. “Many investors, or many market participants were hoping for a larger hike which contributed to the disappointment which affected the lira,” said Marek Drimal, lead CEEMEA strategist at Societe Generale. The central bank said it would tighten further in a reversal of President Tayyip Erdogan’s policy and added the tightening “will be further strengthened as much as needed in a timely and gradual manner.”

“We expect 500 basis points to be delivered in July and August (meetings), respectively, so the repo rate would be brought to 25%,” Drimal added. Data on Friday showed Turkey’s economic confidence index fell 2.5% month-on-month in June to 101.1 points.

Turkey’s foreign trade deficit widened to $12.527 billion in May, compared to a year earlier, Turkish Statistical Institute data showed on Friday. Markets in China were closed for a holiday on Friday.

The South African rand weakened 0.7% against the dollar. The broader emerging markets currencies index fell 0.3% and hit its biggest weekly loss since Feb. 10 against a stronger dollar, spurred by hawkish remarks from major global central banks.

“There is a pretty low conviction for the next few months (in EM markets) due to the uncertainty around DM central banks and economic data and investors are looking for ideas for inspiration on what to do for the following few months,” Drimal said. In Central and Eastern Europe, the Hungarian forint and the Polish zloty weakened 0.3% and 0.3%, respectively, against the euro.

Elsewhere, Zambia has struck a deal to restructure $6.3 billion in debt owed to other governments, including China, marking a long-awaited breakthrough for indebted nations around the world that have faced lengthy negotiations with creditors. For GRAPHIC on emerging market FX performance in 2023

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)