LONDON, Feb 17 (Reuters) - Emerging market stocks took a breather on Friday, easing back after what was set to be a seventh week of gains in the last eight and also a bumper one for many of the major EM currencies.
Developing markets have surged since the start of the year as improving global economic strength and a subdued dollar and debt costs have given investors encouragement.
MSCI’s 23-country emerging market index dipped 0.5 percent on the day but was up a solid 1.1 percent for the week following gains from Turkey to Poland, to China, India and Brazil.
It was a similar pattern for currencies. Most were lower for the day as the dollar rebounded from a 1-week low.
But for the week, South Africa's rand was up 2.7 percent, its best since September. Brazil’s real was set for its eighth weekly gain on the trot, while a third one for Russia's rouble means it is now up 40 percent in the last year. link.reuters.com/map94w
“Inflation is rising across EM... and the Fed (U.S. central bank) is not signalling a March rate hike so this is conducive for emerging market currencies,” said ING’s Chief EMEA FX and IR strategist, Petr Krpata.
“The high yielders, the Russian rouble, the South African rand and Turkish lira are all doing pretty well.”
EM bond markets have been rallying hard too. The premium investors demand to buy the debt of countries such as Brazil , Russia or Pakistan’s rather that ultra-safe U.S. Treasuries has been sliding fast.
Dovetailing with that, the cost of insuring against a default has plunged. South African 5-year CDS price levels hit 182.7 bps on Thursday, which was the lowest since Dec 2014.
Turkey, which was in the market’s firing line earlier this year, said on Friday it was studying the foreign currency debts of its private sector and will introduce new regulatory measures in March.
Deputy Prime Minister Mehmet Simsek said the measures will include not allowing new forex positions and said that Turkey was technically not in recession despite its recent subdued performance.
Nerves surrounding the world’s largest emerging market, China, have also been easing.
Its central bank said on Friday it had sold the least amount of foreign exchange in five months in January, reinforcing views that capital outflows have eased as policymakers have tightened controls and as the yuan steadies.
Net foreign exchange sales by the People’s Bank of China (PBOC) amounted to 208.8 billion yuan ($30.42 billion), according to Reuters calculations. That compared with 317.8 billion yuan in December and 644.54 billion yuan last January.
The Chinese yuan eased 0.2 percent after companies stocked up on the dollar on Friday, though it was on course for its best week in more than a month.”
“Companies suddenly started purchasing dollars. And traders had to follow the trend and shored up long dollar positions,” said one currency dealer in Singapore.
The South Korean won also dipped in Asia after Samsung’s chief was arrested over his alleged role in a corruption scandal, while the Singapore dollar struggled to gain traction despite an upward revision to fourth-quarter growth.
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Additional reporting by Claire Milhench; Editing by Toby Chopra