(Bloomberg) -- The panic sweeping through emerging markets eased Tuesday as Turkish assets got some respite following the lira’s 20 percent collapse in the past five days.

The MSCI EM index of currencies ended a four-day sequence of losses, rising 0.3 percent as of 10:36 a.m. in London, while stocks rallied from South Korea and India to Hungary and Poland. Yield spreads on developing-nation sovereign bonds narrowed versus U.S. Treasuries, a JPMorgan Chase & Co. index showed. The lira rebounded as much as 7 percent as Turkish stocks and bonds rallied.

While some investors said the recent sell-off in emerging markets offered buying opportunities in the strongest economies, others remained cautious, with little to prevent the lira resuming its declines as the government’s standoff with the U.S. showed no sign of ending. Veteran emerging-markets investor Mark Mobius said there is a “real possibility” Turkey will be forced to impose capital controls to stem the lira’s losses.

“After a large sell-off triggered by the rout in Turkey, some investors may have bought emerging currencies on dips,” said Toru Nishihama, Tokyo-based emerging-market economist at Dai-ichi Life Research Institute Inc. “The global economy is still expanding and that’s providing underlying support for the emerging markets. But Turkey’s problems from its spat with the U.S., issues of central bank independence and inflationary pressures are not resolved, which means downward pressure on Turkish assets will continue for a while.”

With average inflation rates at record lows and current-account balances improving, the developing world is diverging from Turkey. Still, the sell-off has helped make valuations attractive. An index of emerging-market stocks is near the cheapest since early 2016, before a two-year rally started.

Turkey’s central bank tightened liquidity Tuesday while local retail accounts sold dollars to take profit from the lira’s slide, buoying the currency. The lira weakened briefly after President Recep Tayyip Erdogan said in Ankara that Turkey will maintain a strong political stance amid an “explicit economic attack.”

Read more: Turkish Lira Rebounds as Locals Sell Dollars Amid Thin Liquidity

Even with the rebound, the lira has plunged 25 percent this month as tension with the U.S. over a jailed American pastor deepened and Erdogan ruled out higher rates and an international bailout.

“EM has already seen a large sell-off between April to July and negative developments in Turkey will eventually be seen (along with Argentina) as isolated given their exceptional external imbalances compared to most EM countries,” JPMorgan analysts including Luis Oganes and Jonny Goulden wrote in note to clients.

The sell-off has spilled over to other developing countries. Argentinian policy makers boosted the main interest rate, already the highest in the world, to 45 percent. The Bank of Thailand isn’t taking pre-emptive steps amid the rout in Turkey as markets are reacting in an orderly manner, Assistant Governor Chantavarn Sucharitakul said. The South African Reserve Bank won’t intervene to prop up the rand unless the orderly functioning of markets is threatened, Deputy Governor Daniel Mminele said Monday.

South Korean financial companies had $1.22 billion of exposure to Turkey as of March, and the impact on the country’s markets will be limited, the Financial Services Commission said in a text message.

EM Laggards

Some higher-yielding currencies in Asia fell, with Philippine peso declining 0.1 percent.

While Asian emerging markets are relatively isolated from what’s happening in Turkey, foreign investors that have bond exposure to the country may have also cut holdings in other developing nations to offset losses or hedge their position, said Maximillian Lin, an emerging-market Asia strategist at NatWest Markets in Singapore. That’s likely to drive currencies weaker, he said, adding that North Asia is more resilient due to less reliance on external funding.

--With assistance from Aline Oyamada, Kyungji Cho, Netty Ismail and Constantine Courcoulas.

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Justin Carrigan in London at jcarrigan@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, ;Rita Nazareth at rnazareth@bloomberg.net, Srinivasan Sivabalan, Robert Brand

©2018 Bloomberg L.P.

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