Shares, currencies fall due to new COVID-19 variant

  • MSCI’s EM Stock Index Down 2%, FX Down 0.4%
  • S. African rand down 2%
  • Oil weighs on Russian ruble
  • Turkish Cenbank Says Committed To Interest Rate Cut Policy

Nov 26 (Reuters) – Emerging markets assets were firmly in the red on Friday, with South Africa’s fringe falling 2% as a potentially more dangerous variant of COVID-19 was discovered, imposing new travel restrictions.

The variant, which scientists believe could be vaccine-resistant and more transmissible, was discovered in Botswana, Hong Kong and South Africa. read more

The United Kingdom banned flights from South Africa and some neighboring countries, while Japan introduced stricter border controls. read more

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South Africa’s fringe, which has been on a downward trend in sympathy with Turkey’s struggling currency and in response to dollar strength, reached a more than a year low. Including the movements of the day, the currency has lost more than 5.5% in two weeks.

Shares listed in Johannesburg (.JTOPI) lost 2% and was on track for their worst session in two months, while 10-year bonds hit an 18-month low.

MSCI’s Emerging Stock Index (.MSCIEF) lost nearly 2%, heading for its worst session in more than three months, with all major exchanges in the red. The one in Hong Kong (.HSI), Indonesia (.JKSE) and Russia (.IMOEX) fell more than 2%, while Polish shares (.WIG20) sank 3%.

The currency index (.MIEM00000CUS) looked poised to record its sharpest one-day loss in 2-1/2 months. The Russian ruble and Turkish lira lost more than 1% against the dollar.

“Asian FX will continue to be under pressure into the weekend thanks to the virus nerves flooding the markets, such as the EM in general,” said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA. read more

EM FX Volatility Rising Fast

Both broader EM indices were on track for their worst week since August.

The ruble slipped past $75 a dollar to its seven-month low, with a 3% to 4% drop in oil prices weighing on the currency further. Germany said Thursday that the European Union must be ready to impose sanctions on Russia in the event of an invasion of Ukraine. read more

Turkey’s central bank said Thursday it is determined to cut interest rates, a policy that has pushed the lira’s crash to an all-time low. read more

The currency crisis has not yet had a significant impact on Turkish banks (.XBANK) and JPMorgan said there are no signs of funding stress in the banking system. The governor of Turkey’s central bank said the banking sector was able to overcome market volatility. read more

In diplomatic news, a Turkish court will hold its final hearing in Friday’s trial of philanthropist businessman Osman Kavala, whose case sparked a struggle between Ankara and its Western allies after they asked for his immediate release.

For GRAPHIC on emerging markets FX performance in 2021, see: http://tmsnrt.rs/2egbfVh

For GRAPHIC on the performance of the MSCI Emerging Index in 2021, see: https://tmsnrt.rs/2OusNdX

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For the CENTRAL EUROPE market report, see:

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Reporting by Susan Mathew in Bengaluru; edit by Barbara Lewis

Our standards: The Thomson Reuters Trust Principles.

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