LONDON Nov 28 South Africa's rand strengthened
2 percent on Monday after agencies affirmed the country's
investment grade credit rating, whilst emerging equities rose to
a two-week high, helped by a retreat in the dollar and U.S. bond
The rand firmed to 13.8 per dollar, its strongest in
nearly three weeks, after South Africa avoided downgrades from
Fitch and Moody's on Friday.
Fitch rates South Africa one notch above 'junk', while
Moody's has the sovereign two levels above sub-investment grade.
A downgrade to junk status would raise borrowing costs and
potentially trigger an exodus from local stock and bond markets.
The yields on the 2026 benchmark government bond
fell 21 basis points to 8.895 percent, whilst five-year credit
default swaps narrowed four basis points from Friday's close to
245 basis points, according to Markit data.
But both agencies warned that political risks could hamper
growth and impede reforms, with President Jacob Zuma facing a
no-confidence vote by the ruling party's executive committee
later in the day.
"Politics is an uncertainty factor," said Jakob Christensen,
head of emerging markets research at Danske Bank, adding that
the market was now waiting to see what S&P would do on Friday.
"If they move, it will be to non-investment grade, but that
would mean a big divergence in the ratings."
A downgrade could see the rand move back to 14.5 per dollar,
but if South Africa avoids this, then the rand could strengthen
a little further to 13.5, he suggested.
A pause in the dollar rally also provided some relief for
the most beaten-down emerging currencies, as the greenback
slipped 0.6 percent against a basket of currencies.
The Mexican peso firmed 0.5 percent and the Turkish
lira gained 0.8 percent. The Chinese yuan also
firmed 0.2 percent, with state-owned banks seen selling the
dollar on the onshore currency market.
Emerging market assets had sold off in the wake of Donald
Trump's victory in the U.S. presidential election, as his
expansionary fiscal policies are expected to fuel inflation and
prompt the U.S. Federal Reserve to tighten more aggressively
than previously thought.
But with doubts re-emerging over the ability of major oil
producers to agree output cuts at OPEC's meeting on Wednesday,
oil prices are back below $47 a barrel, prompting
investors to trim inflation expectations.
"We have been sceptical about the OPEC cuts all along - we
find it very hard to see them agreeing to something
substantial," Christensen said.
With 10-year U.S. Treasury yields retreating
from 16-month highs hit on Thursday, risk appetite improved,
helping MSCI's emerging stocks index to rise 0.7
Chinese mainland and Hong Kong stocks
advanced about half a percent after weekend data showed profit
growth in China's industrial sector picking up in October.
Emerging Europe performed less well, however, with Russian
dollar-denominated stocks down 0.7 percent whilst Polish
shares fell 0.8 percent.
Turkish stocks bucked the trend, gaining 1.2
percent, with Turkey's economic confidence index up 7.4 percent
The yield on India's benchmark 10-year sovereign bond
rose as much as 15 basis points off
7-1/2-year lows after the central bank ordered banks to deposit
extra cash with it to absorb excess liquidity generated by the
ban on larger banknotes.
Banks had been putting cash into government bonds, sparking
a rally in debt markets, whilst the rupee touched record
lows. It was down 0.3 percent against the dollar on Monday.
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 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 861.57 +5.79 +0.68 +8.49
Czech Rep 881.61 -6.53 -0.74 -7.81
Poland 1781.88 -14.42 -0.80 -4.16
Hungary 29932.61 -47.35 -0.16 +25.13
Romania 6821.10 -15.02 -0.22 -2.62
Greece 615.19 -8.16 -1.31 -2.56
Russia 1012.45 -6.06 -0.59 +33.74
South Africa 43862.91 -345.75 -0.78 -4.22
Turkey 75256.69 +893.24 +1.20 +4.92
China 3277.10 +15.16 +0.46 -7.41
India 26351.02 +34.68 +0.13 +0.89
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.02 27.02 +0.03 -0.07
Poland 4.41 4.42 +0.09 -3.55
Hungary 309.76 309.78 +0.01 +1.58
Romania 4.51 4.51 +0.09 +0.23
Serbia 123.10 123.10 -0.00 -1.32
Russia 64.93 64.87 -0.10 +12.35
Kazakhstan 340.40 338.62 -0.52 +0.03
Ukraine 25.64 25.70 +0.23 -6.58
South Africa 13.85 14.10 +1.83 +11.62
Kenya 101.80 101.70 -0.10 +0.39
Israel 3.86 3.87 +0.19 +0.70
Turkey 3.42 3.45 +0.84 -14.64
China 6.90 6.92 +0.19 -5.97
India 68.68 68.51 -0.25 -3.61
Brazil 3.42 3.42 +0.04 +15.79
Mexico 20.56 20.67 +0.55 -16.49
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 389 3 .04 7 27.92 1