Markets bounce back after shock win
Mexican peso continues slide
EMERGING market stocks bounced more than 1 percent yesterday off three-month lows hit in the wake of Donald Trump’s US presidential win, but the Mexican peso continued to sell off after its worst one-day slide since the 1994 Tequila Crisis.
Trump’s shock win triggered a stampede out of riskier assets on Wednesday, as investors switched to safehaven assets, such as gold and developed market government bonds.
But in his victory speech, Trump promised spending on roads, bridges, schools and hospitals, boosting copper prices to 16-month highs and lending support to commodity producers.
“His speech was taken as more positive than what was feared by the market,” said Murat Toprak, an HSBC strategist. But uncertainty over emerging markets remained as it was unclear which policies would be implemented, he added.
That is especially the case with Mexican assets, because of Trump’s threats to dump the North American Free Trade Agreement with Mexico and Canada, and to tax money sent home by Mexican migrants to pay for a controversial wall on the border.
The peso extended losses to fall 0.45 percent against the dollar. The yield premium paid by Mexican sovereign bonds over US treasuries on the JPMorgan EMBI global diversified index widened 7 basis points to 296 basis points yesterday, the highest since November 3.
UBS Wealth Management advised against taking tactical peso positions just yet, saying: “The… uncertainty around global trade dynamics is unlikely to bode well for some of the most trade-orientated and US-exposed emerging countries such as Mexico, Colombia, South Korea and Taiwan.”
MSCI’s benchmark emerging equities index was up 1.2 percent, helped by a rebound in Asian manufacturing markets.
Chinese mainland stocks rose more than 1 percent to 10-month highs and Hong Kong firmed 1.9 percent. But Asian currencies continued to sell off, with the Chinese yuan slipping to fresh six-year lows and the Malaysian ringgit at nine-month lows. The equity rally extended into Europe, with most indices making gains of more than 1 percent.
The biggest gainers included Poland, up around 1.9 percent, and South Africa, which was lifted 1.3 percent by rallies on mining stocks. – Reuters