Emerging currencies hold their own

LONDON: Emerging stocks tracked developed equity markets higher yesterday and were set for the biggest weekly rise since October, while most emerging currencies were also finishing the week on a high against the dollar.

In thin pre-Christmas trading, MSCI’s emerging equity index rose half a percent, led by strong gains across Asia.

With the dollar flat, Treas- ury yields stabilising and commodity prices rising, many emerging currencies firmed.

The rouble approached onemonth highs while the rand was set for the fourth straight week of gains following the victory of businessman Cyril Ramaphosa in ruling party elections.

Emerging dollar bond yield spreads versus Treasuries have compressed 12 basis points in December though they have risen this week off three-year lows. Average local currency bond yields too, down 60 bps in 2017, have risen to one-week highs, reflecting the recent rise in Treasury yields.

Credit Agricole head of emerging market research Sebastien Barbe told clients he expected the EM carry trade to continue.

“We believe emerging markets’ economic growth should remain relatively robust in 2018, that’s if you compare them to what they have been in 2017,” he said.

“We see EM currencies appreciating slightly versus the dollar on average in 2018, as the increase in US yields should slow drastically in 2018 compared with fourth quarter 2017.” – Reuters