Emerging currencies fall against dollar

Emerging equities rose from two-week lows yesterday helped by a key growth-boosting US tax overhaul, but currencies fell against the stronger dollar, led by the Turkish lira under pressure from rising inflation.

MSCI’s benchmark emerging stocks index rose 0.5 per cent, ending three straight days of losses. Both South Korean and Indonesian stocks rose over 1 per cent, while Chinese blue chips gained 0.5 per cent.

The moves reflected a broadbased rally in global equity markets following the US Senate’s approval of a tax overhaul on Saturday, which investors hope will ultimately boost corporate earnings and growth.

Even Turkish banks, which have been under pressure due to worries about potential US fines, bounced 1 per cent, with the broader Turkish stock market up 0.5 per cent.

“People are pleasantly surprised by the Senate passage of the US tax bill, which is pushing up short-term interest rates and US growth expectations,” said Koon Chow, an emerging markets strategist at UBP. “This is good for equities globally, but not so good for currencies relative to the dollar.”

The dollar firmed 0.3 per cent, adding to headwinds for emerging currencies such as the lira, which plumbed record lows in November. The lira weakened 0.25 per cent after data showing inflation spiked to 12.98 per cent in November, the highest in 14 years. Turkish assets have also been in the firing line due to an ongoing US court case which has raised tensions between Ankara and Washington.

JPMorgan said its monthly survey showed investors had sharply cut lira overweight positions in November, while the fall in Turkish local debt positioning was larger than in any other surveyed market.

Expectations are mounting that the central bank will act at its December 14 meeting to put a floor under the tumbling lira and tame inflation. Mr Chow predicted a rate rise of around 100 basis points.

The South African rand was one of the few currencies to firm, up 0.4 per cent on indications that Deputy President Cyril Ramaphosa was doing well in nominations to become the next leader of the ruling ANC party.

In emerging Europe, the Polish zloty firmed 0.2 per cent against the euro.