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
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
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 emerging market FX performance 2016, see tmsnrt.rs/2e7eoml
For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5
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
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)