EM currencies gain ground against dollar; stocks drop
December 19 2016 07:00 PM


Emerging market currencies gained ground against a weaker dollar while stocks hit a two-week low, still feeling the impact of last week’s Federal Reserve meeting.
Ukrainian dollar-bonds soared after the country moved to privatise its biggest lender.
MSCI’s emerging market index weakened 0.3% in its fourth straight day in the red with many Asian bourses racking up losses of 1% or more.
Emerging assets have been hit in recent days by the prospect of US rates rising faster than expected and a stronger dollar, driven by expectations that US President-elect Donald Trump’s planned fiscal spending and tax cuts will fuel economic growth and inflation.
The dollar dropped further from recent 14-year highs, sending major emerging currencies higher, with South Africa’s rand strengthening 0.8% following three sessions of losses while Turkey’s lira edged 0.1% higher on a third consecutive day of gains.
Russia’s rouble gained 0.6%, tracking higher oil prices.
Ukraine’s dollar-denominated bonds jumped by around 1 cent after Kiev said it would privatise the country’s biggest lender, PrivatBank.
“It seemed quite clear for some time that the government had to do something, so this probably comes as a relief, especially if we see positive comments from the IMF (International Monetary Fund),” said Simon Quijano-Evans, emerging markets strategist at Legal & General Investment Management.
“However, multi-month, markets will be focused on how much capital is required from the state and how much can be obtained from the original owners in order to reduce the fiscal burden.”
In Poland, a political standoff continued for a fourth day with opposition lawmakers accusing the ruling Law and Justice (PiS) party of undermining democracy and the constitution following a proposal to restrict media’s access to parliament.
“The latest events are a signal that political risk in Poland continues to rise,” said Piotr Matys, EM FX strategist, Rabobank.
“This is to some extent reflected in the fact that the zloty is the weakest performing currency amongst its CEE peers so far this year. It will remain one of the most vulnerable currencies to external developments.”
The zloty, unchanged on the day, has weakened 3.5% against the euro since the start of the year.
Warsaw’s stock index, up 2.5% since the start of the year, slipped 0.6%.

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