MARKET REPORT North Korea tensions ease on MSCI

Emerging market stocks rebounded from one-month lows yesterday tracking gains in developed markets, with Asian markets shrugging off weaker than expected Chinese data and currencies assisted by the dollar staying just off one-week lows.

MSCI’s benchmark emerging equity index rose 0.8 per cent after plunging over 2 per cent last week when tensions between North Korea and the United States escalated over the former’s threat to fire missiles near the US Pacific territory of Guam.

At the weekend, China’s president Xi Jinping in a telephone call with US president Donald Trump urged all sides to avoid words or action that raised tensions.

Asian stocks and currencies rallied after selling off hard last week, with South Korea stocks up 0.6 per cent, Chinese mainland shares up 1.3 per cent and Hong Kong stocks up 1.4 per cent.

The South Korean won also rebounded 0.2 per cent from a one-month low and China’s yuan firmed against the dollar after the central bank fixed the midpoint at its strongest in nearly 11 months.

The moves came despite slower than expected growth in Chinese industrial output, investment, retail sales and trade in July. Some market participants expect the authorities to step in to head off any hard landing ahead of the autumn Communist Party leadership reshuffle.

“The key thing is that this is just a softening of the economy – it’s not a very sharp slowdown,” said William Jackson, senior emerging markets economist at Capital Economics. “It’s just a weakening from what was a very marked turnaround at the end of last year and the start of this year.”

Emerging European markets also rose, with Turkish stocks up 1.2 per cent, Czech stocks up 0.8 per cent, Hungary shares up 0.5 per cent and Moscow shares up 0.4 per cent.

Currencies were also firmer against the dollar, which fell to one-week lows on Friday after lukewarm US consumer price inflation data. US Treasury yields were also hit.

The South African rand, one of the currencies most sensitive to US inflation and interest rates, firmed 0.6 per cent.

The rand may also have been helped by Moody’s decision to delay ratings decision that was scheduled for last Friday.