MARKET REPORT

Emerging market equities hit three-year highs yesterday and the Mexican peso steadied after the US president Donald Trump’s threats to terminate the Nafta trade treaty were dismissed.

MSCI’s benchmark emerging stocks index gained 0.5 per cent, reversing the risk aversion that had gripped markets on Wednesday after Mr Trump warned he might pull out of the North American Free Trade Agreement and revived threats to build a border wall with Mexico.

Both Mexico and Canada dismissed Mr Trump’s threat to scrap Nafta as a negotiating tactic, helping the Mexican peso steady after initially falling over 1 perc ent against the dollar to one-week lows. Year-to-date, the peso has performed strongly, leading emerging forex gains.

Turkey and Taiwan shares led gains in stock markets, up 0.7-0.8 per cent , with Poland and Hong Kong up 0.4-0.5 per cent, the latter reopening after a one-day closure for a typhoon.

Per Hammarlun, chief emerging markets strategist at SEB, said the macroeconomic backdrop was still very favourable.

“You have days where you might have a bit of a pull-back but given that EM equities have lagged developed markets, they are starting to catch up now and I think that trend will hold for a while.”

Investors are awaiting speeches from Federal Reserve chairwoman Janet Yellen and European Central Bank President Mario Draghi at the Jackson Hole central banking conference this week for clues on the withdrawal of quantitative easing.

But Mr Hammarlund noted that both the Fed and the ECB had played down expectations. “The most likely outcome is they don’t signal too much ... but given the strong economic data we have seen there is still a risk of a more hawkish signal. That could cause some disruption for emerging markets,” he said.

Chinese mainland shares suffered their biggest fall in nearly two weeks, down 0.5 per cent, led by a 6.7 per cent fall in telecom company China Unicom after it rallied hard earlier in the week.

Profits at China’s stateowned firms rose 23.1 per cent in January-July from a year earlier, and China said it would defend itself and its companies against a US trade investigation.