EMERGING MARKETS

CURRENCIES RISE TO 11-WEEK HIGHS

EMERGING market (EM) currencies touched 11-week highs and stocks gained for a fourth consecutive session on yesterday as investors bet on a strong economic recovery while keeping a close eye on Sino-US relations and protests in the US.

Asian shares rallied after data showed China’s services sector returned to growth last month for the first time since January as the economy recovers from the impact of strict coronavirus-induced containment measures.

The Shanghai composite index hit a near three-month high before closing flat, while South Korean shares rose almost 3 percent after the government unveiled a supplementary budget to help the economy ride out the pandemic-induced slump.

Bolstered by gains in Turkey, Russia and South Africa, MSCI’s index of EM shares rose 1.3 percent, while its currency counterpart firmed 0.2 percent.

Indonesia’s rupiah hovered at a 12-week high, supported by an extended rally in bonds. But the Chinese yuan traded flat, with investors cautious about escalating Sino-US friction.

“This is a ‘come what may’ bet; that the (global) economy will re-open without major setbacks, leading to a sustained revival of economic growth,” Mizuho Bank analysts wrote in a note.

The EM stocks benchmark index has risen almost 30 percent and currencies have firmed about 3 percent from March lows, with latest data pointing to a tentative pickup in business activity as several more countries reopen their economies.

Data yesterday showed euro zone PMIs improved in May, and while the Russian services sector shrank again last month, it picked up from a record low in April.

The rouble tracked oil prices higher, but Turkey’s lira traded flat after consumer price inflation climbed more than expected in May.

“All inflation drivers (expect a weak lira) are acting in the downward direction right now,” said Commerzbank analyst Tatha Ghose.

“If inflation still returns to double-digit level because of spikes in the USD-TRY exchange rate, then we have a bad starting point for the coming recovery.” I Reuters