London - Accelerated foreign capital flight pushed offshore Chinese yuan to record lows on Wednesday while the Indian rupee and Turkish lira neared similar milestones, though emerging stocks continued to enjoy a boost from rising global equities.
Mainland yuan has fallen to 8-1/2-year lows after Donald Trump's shock win in the November 8 US elections but Hong Kong-traded offshore yuan, used frequently by foreigners, also fell to levels unseen since offshore trade started in 2010 .
Traders said options were pricing more upside to the dollar versus offshore yuan on expectations of increased capital outflows from China. The onshore yuan too is seen weaker as one-year non-deliverable forwards price it at 7.096, about 3 percent below the midpoint set by the central bank.
“It's really more of a dollar strength story - if you compare the dollar to the euro or the yen, then the weakness isn't restricted to emerging markets currencies,” said Simon Quijano-Evans, a strategist at L&G Investment Management.
“The central bank is showing it doesn't really want to waste its FX reserves on something that it cannot influence at the moment.”
In India, growing strains from the government's de-monetisation moves pushed the rupee to within a whisker of eight-month lows against the dollar, sparking reports of central bank intervention.
Expectations of a hit to short-term economic growth have taken stocks to six-month lows while the weak rupee has fanned inflation fears. Combined with the Trump impact, this has induced foreigners to yank $3.2 billion from Indian stocks and bonds since November 8, data from the local regulator shows.
Five year credit default swaps for the State Bank of India , used as a proxy for the sovereign, were at 162 basis points, according to Markit, the highest since mid-August.
Quijano-Evans called it “the mother of all monetary shocks”.
“The economy is going to have to deal with this monetary shock in the fourth quarter before it hopefully starts to recover next year,” he said.
“That needs a reaction from the central bank through some sort of monetary easing.”
Elsewhere, as the dollar index eased for a third day and a worldwide equity and commodity rally continued, MSCI's emerging equity index rose 0.25 percent, moving further off five-month lows.
Asian currencies broadly followed the yuan, with Malaysia's ringgit at 14-month lows. Declining oil prices took the Russian rouble almost 1 percent lower though rouble-denominated equities approached record highs, lifted by mining and steel stocks.
Emerging European markets are focusing on Turkey to see if President Tayyip Erdogan will soften his stance on raising interest rates, given the lira's 8 percent decline since the US election.
The currency slipped 0.4 percent on Wednesday, staying near record lows.
Erdogan is expected to chair an economic coordination committee on the eve of a central bank meeting that may deliver the first rate rise in almost three years.
But ING analysts said one rate hike would do nothing to salvage the lira or local bonds. They predicted a bounce to be short-lived as “any persistent tightening cycle and higher policy rates look only a distant possibility at this point”.
They noted the currency and bonds remain among the worst performing in emerging markets - while even the Mexican peso has recouped 4 percent of post-election losses, the lira has hardly budged from record lows.
The South African rand eased 0.4 percent and bond yields rose off 12-day lows as data showed October inflation quickening to 6.4 percent year-on-year, above analysts' forecasts. The central bank is expected to hold interest rates at 7 percent on Thursday.
REUTERS