January 28, 2014 7:00 pm JST

Market focus turns to emerging economy risks

RIE MORITA, NQN staff writer

TOKYO -- Risk-averse sentiment has spread in recent days as investors assess the effectiveness of measures in emerging economies to avert crises.

     In China, high-yield asset investment products called "wealth management products (WMPs)" looked at risk of default. Worries have, however, eased since media reports said all such products will be repaid to the investors in full without interest.

     Turkey's central bank is expected to raise interest rates to stabilize the country's currency, the lira, on exchange markets. The bank will on Tuesday hold a monetary policy committee meeting. According to a Wall Street Journal survey of analysts, the central bank is expected to raise its overnight lending rate between two and three percentage points from the current level of 7.75%.

     The Argentinian peso, which fell sharply last week, has stabilized.

     Sentiment is improving alongside news from emerging markets. An official at a Japanese bank said that a cautious sense of relief has spread among investors.

     The dollar traded at the upper-102 yen line Tuesday. Buying pressure on the "low-risk" yen is decreasing. The Japanese bank official said that some foreign-exchange traders started buying the dollar for the yen when the greenback traded at lower levels, once they were assured that emerging country risk had diminished.

     However, no investors see a return of risk appetite for now. Many market insiders are focused on the effects of ad hoc solutions to problems proposed by policymakers in emerging economies.

     China's WMP default concerns have eased in the short term, but an official at a Japanese megabank said that the fear remains that the same issue could resurface later. In addition, the Turkish lira's depreciation is due to the country's large current-account deficit and sluggish economy. Many experts point out that a rate hike alone is not enough to fix the issue.