Turkish lira, bank stocks set for weekly gain

Emerging currencies are broadly trading around two-week lows

Emerging stocks bounced on Friday, thanks to robust Chinese data and higher tech shares while the Turkish lira and shares headed for big weekly gains as some of the risks to the country's banks appeared to recede.

A firmer dollar after the resolution of the US debt ceiling issue and an upcoming Federal Reserve rate rise kept most emerging currencies flat to weaker on the day, with many investors on the sidelines before US jobs data that could determine the tone of the Fed's message next week.

Emerging currencies are broadly trading around two-week lows as per JPMorgan's ELMI Plus index while MSCI's emerging equity index rose 0.8 per cent

The lira was flat but has risen two straight weeks, soothed by expectations of a big rate rise on Dec 14, pledges of government support for banks and developments in the US trial of an executive of a Turkish bank.

Turkish bank shares jumped 1 per cent and are set for the biggest weekly gain since mid-July of almost 5 per cent.

"People are expecting a more benign outcome for that (US trial) story and that is part of the reason for the lira's resilience," said Societe Generale analyst Regis Chatellier, referring to earlier fears of US fines on Turkish banks.

Politics was an issue also in South Africa where next week will be the final one before the election of a new leader for the ruling ANC party. But the rand reversed early losses to trade 0.6 per cent higher versus the dollar, lifted also by hopes of a win for the business-friendly Cyril Ramaphosa.

Johannesburg-listed shares in retailer Steinhoff rose 11 per cent after slumping 63 per cent in the past two sessions .

The zloty showed little reaction to the removal of Prime Minister Beata Szydlo, but Hungary's forint slipped to the lowest levels this year after inflation data indicated there was little chance the central bank would modify its ultra-dovish stance

Emerging local currency debt yields are at one-week highs on the GBI-EM index on average and well off the sub-6 per cent level touched in September.

JPMorgan said inflows to emerging bond funds picked up further in the past week to $2 billion, the highest since June.

But while analysts expect 2018 to be another strong year for emerging markets, Chatellier said valuations were starting to look pricey especially on dollar debt.

"Fundamentals are going the right way in EM but we will start next year with tight valuations. So for dedicated EM debt funds it's going to be difficult to generate returns,"he said.

"The good stories all tend to be overpriced."

Published: December 8, 2017 05:39 PM


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