Emerging Currencies Fall With Stocks Amid Fed Rate-Increase Bets

Frankfurt (Sept 9)  Emerging-market currencies weakened, led by the Turkish lira, and developing-nation stocks fell for a fourth day amid concern U.S. interest rates may rise faster than investors anticipated.

The lira depreciated 1 percent versus the dollar, while the South African rand and South Korea’s won both decreased 0.8 percent. Benchmark equities gauges in Turkey and Ukraine declined at least 1.3 percent. OAO Gazprom paced a 0.8 percent gain in Russian shares after European Union governments put on hold the imposition of new sanctions.

The MSCI Emerging Markets Index retreated 0.4 percent to 1,090.31 at 12:16 p.m. in London, poised for the longest losing streak since Aug. 8. Low volatility across financial markets may signal investors are underestimating how quickly the Federal Reserve will raise interest rates, according to researchers at the San Francisco Fed.

“The Turkish lira remains one of the most fragile currencies,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “Forecasts of Turkey’s current-account deficit still stand among the highest in emerging markets.”

The lira weakened to 2.1927 per dollar, the lowest level since March 25 on a closing basis. Turkey’s current-account gap was 7.5 percent of gross domestic product at the end of the first quarter, the most among major emerging markets, according to data compiled by Bloomberg.

Fed Projections

Fed officials in their June economic forecasts predicted their target interest rate will be 1.13 percent at the end of 2015 and 2.5 percent a year later. They are set to release updated projections Sept. 17.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 0.1 percent after gaining 0.7 percent yesterday to its highest close since July 2013. A gauge of 20 emerging-market currencies retreated for a second day, falling 0.3 percent to a seven-month low.

The Borsa Istanbul 100 Index declined 1.3 percent, the most in almost three weeks, led by Turkey’s largest lenders. Turkiye Garanti Bankasi AS fell 1.6 percent, the most since Aug. 29. The Ukrainian Equities Index slid 1.9 percent to the lowest level since May 22, while equities in Hungary and the Czech Republic slipped less than 0.1 percent.

Nine out of 10 industry groups in the MSCI Emerging Markets Index retreated, paced by health-care companies. The developing-markets gauge has gained 8.8 percent this year and trades at 11.4 times 12-month estimated earnings, according to data compiled by Bloomberg. The MSCI World Index has risen 4.8 percent and is valued at a multiple of 15.

Russia Sanctions

The Micex Index advanced for the fifth time in six days. Gazprom increased 1.2 percent to the highest level since July 17, while OAO Sberbank added 1.3 percent. EU governments put on hold for at least a “few days” new penalties against Russia, allowing more time to assess the viability of a Ukraine cease-fire without risking further trade retaliation by the Kremlin.

“The decision to postpone the sanctions creates a moderately positive background,” Dmitry Polevoy, the chief economist for Russia and the Commonwealth of Independent States at ING Bank Eurasia Zao in Moscow, said in an e-mailed note.

The ruble weakened for a second day and the yield on Russian bonds maturing in February 2021 rose one basis point to 9.52 percent. Russia is cancelling its eight local bond auction in a row, according to a Finance Ministry statement today.

The premium investors demand to own developing-country debt over U.S. Treasuries narrowed one basis point to 271, according to JPMorgan Chase & Co. indexes.

Vietnam’s VN Index declined 2 percent, the most in emerging markets. The Shanghai Composite Index (SHCOMP) was little changed as markets in mainland China resumed after a holiday.

Source: Bloomberg