Russia leads the pack as emerging markets rally

EMERGING markets started the week on a high yesterday, with stocks at a two-year peak, the rouble, rand and lira up for a fourth straight session, and hard-currency bonds at their strongest since late 2014.

The rally came thanks to an oil-led charge in commodity markets, as well as weakness in the dollar after lacklustre economic data on Friday cooled growing expectations of a rapid-fire run of US interest rate hikes.

Russia’s rouble jumped almost 1% to under 56.5 per dollar as the Russian and Saudi energy ministers said oil production cuts would be extended, catapulting the prices of Brent and West Texas Intermediate higher.

Russian shares led the pack with a rise of more than 1.2% after climbs across much of Asia had lifted MSCI’s 23-country Emerging Markets Index to its highest since May 2015 and put it on track for a sixth day of gains for the first time since August.

“The news that there’s been a consensus on extending the Opec cuts has provided some support to oil prices and some of the oil currencies such as the rouble,” William Jackson, Capital Economics’ senior emerging markets economist, said.

“Maybe that has spread through to a more general improvement in sentiment towards emerging markets.”

There was little impact, meanwhile, from weaker-than-expected Chinese data.

The yuan edged marginally lower, but shares in Shanghai ended up 0.4%, steadying after falling almost 6% since early April.

Elsewhere, Pakistan shares hit their latest record high and South Korean stocks shrugged off a fresh missile test in North Korea to finish 0.2% higher and just below their all-time peak.

India’s rupee climbed 0.3% on news that consumer inflation eased in April to its lowest in at least five years.

The country’s improving inflation performance has pushed real interest rates – the amount by which they exceed inflation – strongly into positive territory. That has attracted buyers to the bond market and driven stocks to double-digit percentage gains this year. Ten-year yields slipped to a one-month low.

Morgan Stanley investment flow data published yesterday underscored the current fashion for emerging markets assets. The dedicated emerging-market funds that it tracks reported inflows of $2.32 billion (R30.5bn) over the past week. – Reuters