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EMERGING MARKETS-Turkey's lira pressured by policy worries; Brazilian assets sink

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Susan Mathew
·2 min read
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By Susan Mathew

Feb 23 (Reuters) - Turkey's lira lagged most emerging-marketcurrencies on Tuesday amid debates in the government onforeign-exchange policy, while Brazilian assets were beingclosely watched after outflows on fears of politicalinterference in state-run companies.

The lira fell 0.1% after posting its worst day sincemid-January on Monday.

Markets showed some concern over the government's defendingpolicies of Berat Albayrak, a former finance minister andPresident Tayyip Erdogan's son-in-law, that saw a sharp declinein foreign exchange reserves. Some saw that as a sign thatAlbayrak could make a return.

"The story that Albayrak could return in some capacity isnew and one that investors will be monitoring closely," saidPiotr Matys, senior FX strategist for central and eastern Europeat Rabobank.

But he added that the main source of support, such as highinterest rates and commitment to maintaining tight monetarypolicy, remain intact, and the day's move could be a correctionafter the lira's impressive run over the past few months.

In Brazil, news that President Jair Bolsonaro fired the headof state-run oil company Petrobras roiledmarkets. Investors took the move as a sign that some ofBolsonaro's market-friendly initiatives may be rolled back.

Brazilian markets had their worst day since the autumn. TheBovespa index lost almost 5% with state-run companiesleading the declines. Petrobras finished the day down 21%.

"Bolsonaro is clearly adopting many of the populist policiesof the past. And because of the growing uncertainty triggered byBolsonaro's latest moves, a 50bp rate hike is now our base casefor March," said analysts at TS Lombard.

MSCI's index of emerging market shares was flat onTuesday, giving back some gains as mainland China stocksended lower. Currencies rose 0.1% aftera sell-off the day before, when rising U.S. bond yieldspressured risk assets.

Higher U.S. yields pressure risk-driven assets by offeringrelatively stronger and safer returns. Yields retreated onTuesday.

South Africa's rand gave up early gains and was down0.1% before its budget on Wednesday, while yields on 10-yearbonds slipped. But Deustche Bank upgraded South African fixedincome to "overweight".

"We find risk-reward once again attractive to express a morebullish bias into the budget. We believe the market has overshotrelative to fundamentals and the more positive budget - whichwas well priced in by early February, is currently not priced inanymore."

For GRAPHIC on emerging-market FX performance 2020, see http://tmsnrt.rs/2egbfVhFor GRAPHIC on MSCI emerging index performance 2020, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

(Reporting by Susan Mathew in Bengaluru; editing by Larry King)