Shares are falling due to China’s COVID restrictions, while the Turkish lira continues to fall

Shares are falling due to China's COVID restrictions, while the Turkish lira continues to fall

Emerging market equities slumped on Thursday, led by China shares, as portions of Shanghai were subjected to additional COVID-19 limitations, while Turkey’s lira extended its losses for the fourth day. Following a more than 1% increase in the previous session, MSCI’s developing market equities index fell 0.3 percent. Despite data showing that China’s exports climbed by double digits in May, equities in the world’s second-largest economy closed the month lower as portions of Shanghai implemented additional lockdown restrictions.

Investors also held back big bets ahead of the European Central Bank’s policy meeting later in the day, where it will likely flag an end to its asset purchase program at the end of this month, and promise a rate hike for July. Earlier in the week, the Reserve Bank of Australia surprised markets with a larger-than-expected hike to its key lending rate, sparking a flight to safety as investors dumped riskier assets including those in emerging markets.

“There are lingering concerns that China’s brisk recovery could be a false dawn given that the zero-COVID strategy is staying firmly in place and that could mean rolling lockdowns will continue,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

Turkey’s lira weakened to 17.21 to a dollar by 0831 GMT, getting close to its record low hit in late December due to unorthodox monetary policy. The currency has lost more than 23% of its value against the U.S. currency this year after a slide of 44% last year. Concerns remain over soaring inflation, a widening current account deficit, and Ankara’s policy response.

South Africa’s rand firmed 0.5% ahead of the release of the current account, mining output, and industrial production data. The government’s benchmark 2030 bond also edged higher. Hungary has successfully issued foreign currency benchmark bonds in international markets, Finance Minister Mihaly Varga said. The forint edged higher against the euro.

“It is possible that the economy management assessed that keeping the lira exchange rate at its March-April levels was not sustainable anymore as it was eating up already weak central bank reserves. So, maybe some depreciation will be allowed until the exchange rate sits in a weaker range,” said Irem Sagiroglu, an economist at Emerging Market Watch in Turkey.

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