EM-Rouble falls on easing in some capital controls; stocks down on growth fears

Emerging market stocks hit three-week lows on Monday as China stocks tumbled on Covid-19 and inflation worries, while Russia’s rouble weakened after its central bank decided to relax temporary capital control measures.

On the onshore market, the rouble weakened up to 82 a dollar after closing on Friday at 76. The country’s central bank said late on Friday it will scrap a 12% commission for buying foreign currency through brokerages from April 11 and lift a temporary ban on selling foreign exchange cash to individuals from April 18.

But the currency is still far from its all-time lows of 121 per greenback hit when investors dumped Russian assets after its invasion of Ukraine prompted severe Western sanctions.

“Exports continue to flow and there will be a buying pressure on the rouble,” said Per Hammarlund, chief EM strategist at SEB, adding that given the Russian government doesn’t need to borrow money in the near term there may not be a market turmoil.

The Kremlin said Russia will take legal action if the West tries to force it to default on its sovereign debt.

Most other emerging market currencies weakened, with Turkey’s lira giving up early gains made after data on Monday showed the country posted a smaller than expected current account deficit. An index of developing world currencies extended losses to a fifth straight session.

Its stocks counterpart fell 1.3% as Chinese blue-chips and Hong Kong stocks slumped 3% after factory-gate and consumer prices rose faster than expected in March, while the worst outbreak of Covid-19 in two years has led to several companies suspending production.

“Investors are more and more focused on the risk of global stagflation,” said SEB’s Hammarlund. “That together with this slowdown in Chinese growth and the continued Covid-19 restrictions is what’s weighing on risk sentiment today.”

“This is a pattern that we will probably see this week and in the coming weeks too.”

Pakistan stocks jumped 3.6% and the rupee rallied 1% after Prime Minister Imran Khan was ousted in no-confidence vote in parliament. Opposition leader Shehbaz Sharif is most likely to be elected when the lower house convenes to decide the new prime minister at around 2 p.m. (0900 GMT).

In Sri Lanka, Finance Minister Ali Sabry said the country will need about $3 billion in external assistance over the next six months. The International Monetary Fund said on Saturday it was “very concerned” about Sri Lanka’s ongoing economic crisis and that it had started technical-level engagement for a loan programme.