Emerging markets hit 19-month high
Drivers include subdued global bond yields and better growth prospects
EMERGING-market stocks hit a 19-month high yesterday, with even hints of looming rate hikes in the US and the dollar’s longest unbroken rise since 2012 unable to knock them off their stride.
The Morgan Stanley Capital International’s 26-country emerging-market equity index hit its latest peak thanks to its ninth climb in the past 11 days, taking its gain since the end of December to almost 12 percent.
Many of the big emerging-market currencies and bond markets also continued to shine. The rand rose 0.7 percent to go under 13 per dollar for the first time since October 2015, while Russia’s rouble was up, just about, for a tenth day in the past 11 days and at its highest since July 2015.
Aberdeen Asset Management’s Kevin Daly said the across-the-board strong performances were down to a “goldilocks” combination of factors, including broadly subdued global bond yields, inflation and improving growth.
“If you add it up, it’s a pretty strong backdrop for higher-yielding emerging-market assets,” Daly said.
“Markets maybe are also picking up on some of the more conciliatory comments from (US President Donald) Trump on China on the one China policy and that he hasn’t followed through on the currency-manipulation talk.”
Egypt’s pound has been roaring too, as investors have swept back in following its devaluation late last year. It climbed 0.3 percent on the day, taking its surge over the past couple of week to almost 17 percent.
The upbeat sentiment also kept the cost of insuring exposure to South African and Turkish debt pinned near twoyear and five-month lows re- Gain in MSCI emerging-market equity index since end of December flation slowed to 6.6 percent in January, weaker than forecast, data showed.
Turkey’s finance minister, Naci Agbal, meanwhile said its budget spending in January was in line with targets.
William Jackson, a senior emerging-markets economist with Capital Economics, pointed to the recent rebound in the Turkish lira, which has barely budged on the day at 3.65 per dollar.
“It might be that the sell-off we saw in January caused it to overshoot, and it has recouped some of those losses.”
“The central bank did raise interest rates – it wasn’t a convincingly large rate hike, but it still showed it was able to raise interest rates. That may have helped to ease some of the market’s fears,” Jackson said.
Nigeria’s recently sold bond continued to climb.
In central and eastern Europe, Hungary’s stock market hit its latest record high and Czech shares continued their strong start to the year. However, shares in Poland took a breather.
Overnight in Asia, there had been mild weakness for the region’s currencies such as the South Korean won, Thai baht and Philippine peso after the dollar received a boost from Federal Reserve chair Janet Yellen, who said another US rate hike was likely in one of its upcoming meetings.
In Latin American, however, the Brazilian real hit its strongest level in more than a year and a half, following a rise in capital inflows and after the central bank resumed currency intervention following a two-week pause.
“The Mexican peso has also been doing very well,” Daly said. “It looks like the diplomacy (with the US) is improving a little.”
The peso is up almost 9 percent since the middle of January. – Reuters