EMERGING MARKETS-Stocks fall on China deflation fears, Turkish equities rally after presidential candidate withdraws

Emerging market stocks fell for a third session on Thursday as gloomy data from China stoked concerns about deflation, while Turkey's equities and bonds rallied after presidential election candidate Muharrem Ince announced his withdrawal from the race.

Emerging market stocks fell for a third session on Thursday as gloomy data from China stoked concerns about deflation, while Turkey's equities and bonds rallied after presidential election candidate Muharrem Ince announced his withdrawal from the race. The MSCI's index for emerging market stocks was down 0.2% at 1154 GMT, while currencies in the region were also subdued, down 0.1%.

Turkey's dollar-denominated government bonds jumped as much as 2.4 cents on the dollar, while the main BIST-100 stock index rallied 6.2%, with bank stocks climbing 9.6%. Ince, one of the four contesting the election, withdrew days before Sunday's vote, in a potential boost to the main rival of President Tayyip Erdogan.

A survey earlier in the day showed Erdogan lagging his main rival Kemal Kilicdaroglu by more than five percentage points. "Ince's withdrawal swings more votes in Kilicdaroglu's favour and reinforces his position as the favourite. Attention may soon turn to how difficult it will be to fix the economic crisis and maintain unity of a diverse coalition," said Hasnain Malik, head of equity research at Tellimer. Meanwhile, stocks in China slipped 0.2% and the yuan hit a two-month low against the dollar, as data showed China's consumer prices rose at the slowest pace in more than two years in April, while factory gate deflation deepened.

The dollar, which had taken a hit on Wednesday after a U.S. inflation report raised bets of a rate-hike pause by the Federal Reserve, found its footing following the release of the Chinese data, which provided further evidence of the country's weak post-pandemic recovery. The South African rand came under renewed selling pressure, hitting a fresh three-year low against the dollar, as sentiment towards the currency was dented by the country's worst power cuts on record.

"South Africa is moving into the colder winter months and preparations are being made for an escalation of the load-shedding schedule. This is having a dire effect on what is already a fragile economy," said Shaun Murison, a senior market analyst at IG. Pakistan's rupee fell to a record low of 296.93 against the greenback, amid deadly street protests sparked by the arrest of former Prime Minister Imran Khan and some senior leaders of his party.

The Hungarian forint and the Polish zloty slid from over one-year highs hit in the previous session, down 0.6% and 0.1%, respectively, while the Czech crown slipped 0.1% against the euro. Czech inflation slowed further in April to its lowest since March 2022, data showed, possibly taking pressure off the country's central bank to hike rates.

An International Monetary Fund (IMF) staff team is expected to arrive in Sri Lanka on Thursday as the crisis-hit country prepares for the first review of a loan programme in September. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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