May 25 (Reuters) – Emerging market stocks hit a one-month low on Thursday with sentiment hurt by mounting Sino-U.S. trade disputes, while the Turkish lira and the South African rand weakened ahead of interest rate decisions by both countries.
MSCI’s emerging market equities index .MSCIEF was down 0.6% by 0815 GMT, its third straight session in the red.
Disputes over technology between China and the United States have escalated in recent days, with allegations of spying by Chinese hackers exacerbating tensions and denting sentiment that was already fragile given the absence of a deal to raise the U.S. debt ceiling.
Hong Kong’s Hang Seng index .HSI took a big hit, tumbling 1.9%, while stocks in mainland China .CSI300 lost 0.2% and the yuan also weakened.
The Turkish lira TRYTOM=D3 was at a record low with the country’s central bank expected to hold interest rates at 8.5% later on Thursday.
The decision would come days before Turkey’s presidential runoff elections where incumbent Tayyip Erdogan, whose unorthodox monetary policies have been unpopular with investors, is widely expected to emerge victorious.
“Turkey has been largely uninvestable for foreign investors for a while now, so yet another rate cut would increase the need for further capital controls on locals and deteriorate the inflation outlook even further,” said Erik Meyersson, Chief Emerging Markets Strategist at SEB.
U.S. debt ceiling concerns hurt South African rand before rate decision
Turkish authorities asked banks this week to buy treasury eurobonds, after Ankara’s credit default swaps (CDS) soared following the May 14 first round of the presidential election, sources told Reuters.
South Africa’s rand ZAR=, which has been pummelled by a crippling power crisis in the country, slipped 0.2% on Thursday as the safe-haven dollar got a boost from the debt ceiling uncertainty.
The South African Reserve Bank (SARB) is expected to hike rates by 25 basis points – its 10th rate increase in a row – though some analysts say a larger 50-basis-point hike is also possible, as inflation remains above the central bank’s target.
“Should the SARB raise rates by 50bps we expect some short term firming of the ZAR, although the sustainability thereof will be under question as markets refocus on international events,” said Shaun Murison, a senior market analyst at IG.
“The higher than expected rate hike, (should it occur), would also be a net negative for GDP in South Africa.”
The Polish zloty EURPLN= rose 0.2% against the euro, with a member of the country’s central bank Monetary Policy Committee, Ireneusz Dabrowski, saying rate cuts could be possible by 2023-end.
The broader EM currencies index .MIEM00000CUS was down 0.3%, with the dollar =USD at a two-month high as fears of a U.S debt default mounted after ratings company Fitch put the country’s credit on negative watch.
Elsewhere, crisis-stricken Sri Lanka should be able to conclude newly launched debt-restructuring talks by September, or November at the latest, its president said on Thursday, adding that the negotiations had made “remarkable” progress.
(Reporting by Amruta Khandekar; editing by Mark Heinrich)
