Turkey and Egypt have gone from underdogs to unlikely havens as emerging-market stocks endured the worst August since 2015.
Stocks traded in Istanbul and Cairo are the biggest gainers among peers in the month, defying a 5.8% slump across emerging markets. The nations’ policy resets and buying by local investors seeking to hedge against surging inflation helped shield their markets from the fallout of China’s mounting economic problems and a Federal Reserve that says it’s prepared to keep raising interest rates.
In Turkey, President Recep Tayyip Erdogan has signaled he’ll give his new finance minister and central bank governor some leeway for a shift away from unorthodox policies — including ultra-low borrowing costs — after his election win in May. The central bank hiked interest rates by 7.5 percentage points this month, far more than expected, fueling a rally in the nation’s stocks, currency and bonds.
Egypt’s equities benchmark has climbed 29% this year in the local currency, but is only 3% higher in dollar terms following the pound’s devaluation in January, after which the pound has traded relatively flat. The International Monetary Fund has said it’s waiting to see privatization deals for state assets and genuine flexibility in Egypt’s currency before carrying out the first review of a $3 billion rescue program.
Hungary’s economy faces a myriad of challenges such as an ongoing recession, a record year-to-date budget shortfall and the European Union’s highest inflation rate and borrowing costs. Prime Minister Viktor Orban has also failed to unlock crucial EU funds, which are suspended due to graft and rule-of-law concerns.
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