Investors glean emerging market rebound for clues
Currencies had their biggest gain since March, while bonds strengthened for first time in seven weeks
For all the concern that there’s a crisis brewing in some developing economies, emerging markets are showing resilience going into the final week of May, thanks to the dollar’s recent pause and a drop in US yields.
That may all change should Friday’s payrolls data fan speculation that the Federal Reserve will accelerate the pace of interest-rate increases. But investors are saluting a week in which emerging-market currencies had their biggest gain since March and local-currency bonds strengthened for the first time in seven weeks as US 10year yields slipped back below 3 per cent. Still, stocks extended the previous week’s losses.
“The key driver for emerging markets will continue to be exogenous factors, in particular the performance of the US dollar and US rates, which have been key headwinds for our asset class in recent weeks,” said Paul Greer, a London-based portfolio manager at Fidelity International.
Purchasing managers’ indexes from across emerging markets will provide clues on the health of the global economy and influence policymakers’
The key driver for emerging markets will continue to be exogenous factors, in particular the performance of the US dollar and US rates, which have been key headwinds for our asset class in recent weeks,” Paul Greer | Fidelity International portfolio manager
thinking. Investors will also closely watch how central banks will respond to any return of currency weakness.
Not immune
Turkey is scheduled to release trade balance data on Thursday. Elsewhere, Central European rates and currencies, especially Poland’s and Hungary’s, won’t be immune to the pressure on European peripheral debt, Fidelity’s Greer said.
“If markets stabilise, you may see investors get a little more optimistic and try to jump in to pick up some values,” said Eric Stein, a Boston-based codirector of global income at Eaton Vance Corp. “If things keep selling off, investors may get even more skittish.”