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LONDON Nov 22 Emerging market equities rose more than one percent to 11-day highs on Tuesday, helped by a broad commodity and equity rally and a pause in the rise of U.S. bond yields and the dollar.
Expectations of inflation stemming from President-elect Donald Trump's future fiscal policies have fed through to U.S. bond yields and pushed the dollar to near 14-year highs. That in turn has weighed heavily on emerging markets.
But with 10-year bond yields some 10 basis points off highs hit earlier in the week, there was some relief for riskier assets. At the same time, Trump's plans to boost infrastructure and defence spending are lifting commodity prices, helping producers.
"This morning we are seeing a bit of a relief, emerging markets are recouping some of the losses seen after the U.S. election," said Guillaume Tresca, senior emerging markets strategist at Credit Agricole.
"Risk appetite is improving as equity markets are up but the biggest factor is a decline in the long-term (U.S.) rates."
MSCI's benchmark emerging stocks index posted its biggest one-day gain since before the Nov. 8 U.S. election. Commodity producers made some of the biggest advances, after copper rose 2 percent to one-week highs and palladium hit its strongest in over three months.
Oil prices also surged to three-week highs on growing conviction that major producers, including Russia, will reach a deal on output
South African shares rose 1.2 percent to 10-day highs and Russian dollar-denominated stocks climbed around 1 percent.
Their currencies also gained, with the Russian rouble firming 0.7 percent against the dollar, the Kazakh tenge up 1 percent to three-week highs and the South African rand firming 1.3 percent.
Although Trump reiterated his intention to withdraw from the Trans-Pacific Partnership (TPP), an Asia-Pacific free trade accord, this failed to dent enthusiasm for Asian equities, with Hong Kong stocks up 1.4 percent and Chinese mainland shares up just under 1 percent to 10-month highs.
Emerging Europe also made strong gains, with Polish stocks rising 1.2 percent and Czech shares up 0.6 percent.
With the dollar index slipping 0.3 percent, even non-commodity related currencies were able to make gains.
The Chinese yuan rebounded from the near 8-1/2 year low hit on Monday after the central bank set a higher official fix for the first time in nearly three weeks.
The Mexican peso, which has borne the brunt of selling in the wake of Trump's victory given his campaign rhetoric on trade tariffs, immigration and border walls, strengthened as much as 0.8 percent.
Even the Turkish lira, which has been pounded in recent days as a crackdown in the wake of July's failed coup continues, gained 0.2 percent.
Economists are divided over the possibility of a lira-supportive rate rise at the central bank's Thursday meeting, with almost half of those surveyed by Reuters predicting a 25 basis point rise in one-week repo rates to 7.75 percent.
Tresca does not share that view but noted a palpable shift in the government's lira view, with some officials voicing concern about its weakness. The currency has fallen 14 percent against the dollar, around half those losses coming this month.
While a government meeting to discuss the lira was called off on Tuesday, Tresca noted this week's comments by deputy prime minister Mehmet Simsek on the exchange rate .
"So there are indications the government may have changed its stance, this is a game changer," he said, adding that "backdoor tightening" by increasing dollar liquidity was possible this week.
The Hungarian forint firmed 0.2 percent against the euro before a central bank meeting at which rates are expected to remain unchanged at 0.9 percent.
The most widely used emerging sovereign dollar bond index widened three basis points (bps) to 361 bps, its highest in a week.
Mahesh Bhimalingam, head of EM credit strategy at BNP Paribas, said because of Trump and anticipated higher yields and the dollar, emerging markets would be impacted in terms of higher current account deficits and pressure on commodities.
"This could impact the creditworthiness of some countries and cause credit quality pressure," he said.
For GRAPHIC on global currency performance against the dollar, year to date, see tmsnrt.rs/2egbfVh
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 857.03 +9.63 +1.14 +7.92
Czech Rep 889.98 +5.98 +0.68 -6.94
Poland 1778.23 +21.88 +1.25 -4.35
Hungary 30194.90 +91.33 +0.30 +26.23
Romania 6849.32 +8.44 +0.12 -2.21
Greece 618.14 +2.31 +0.38 -2.09
Russia 1026.30 +11.42 +1.13 +35.57
South Africa 44635.27 +465.47 +1.05 -2.54
Turkey 75713.23 +169.66 +0.22 +5.56
China 3249.58 +31.43 +0.98 -8.18
India 25967.34 +202.20 +0.78 -0.58
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.03 27.01 -0.06 -0.12
Poland 4.42 4.42 +0.01 -3.67
Hungary 308.32 308.70 +0.12 +2.05
Romania 4.51 4.51 -0.02 +0.24
Serbia 123.21 123.18 -0.02 -1.41
Russia 63.50 63.97 +0.76 +14.89
Kazakhstan 335.20 338.67 +1.04 +1.58
Ukraine 25.65 25.70 +0.19 -6.62
South Africa 14.07 14.25 +1.23 +9.87
Kenya 101.80 101.80 +0.00 +0.39
Israel 3.86 3.86 +0.11 +0.77
Turkey 3.35 3.36 +0.20 -13.04
China 6.88 6.89 +0.13 -5.68
India 68.16 68.22 +0.08 -2.89
Brazil 3.38 3.35 -0.99 +16.98
Mexico 20.33 20.44 +0.54 -15.56
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 387 3 .02 7 29.00 1
(Additional reporting by Sujata Rao; Editing by Mark Trevelyan)
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