Emerging stocks hit new one-year highs yesterday and headed for their fifth straight week of gains, as below-forecast Chinese data stirred expectations that Beijing would add to the stimulus largesse of developed countries’ central banks.
MSCI’s emerging equity index was lifted by Hong Kong shares surging to nine-month highs while mainland Chinese markets firmed 1.6-1.9% after retail sales, industrial output and investment data all underwhelmed, leading to bets on monetary policy easing in the world’s No 2 economy.
The data also pushed Chinese 10-year treasury yields to 6-1/2-year lows.
An overnight oil price jump and a record Wall Street close offered more tailwinds to the MSCI index which has risen for five weeks straight and is up almost 3% so far this week.
“The positive momentum for emerging markets is premised on positive expectations regarding more stimulus in G10 — overall that’s the theme that supports emerging markets and the appetite for risky assets,” said Roxanna Hulea, a strategist at Societe Generale.
While US data has been relatively firm and retail sales data is awaited later, most analysts do not expect significant policy tightening there even in 2017.
As a result, big gains have also come on emerging dollar bonds where yield spreads over Treasuries have fallen about 10 basis points this week to a 13-month low.
However the bond rally has bypassed Ukraine this week amid renewed tensions with Russia over Crimea, which the Kremlin annexed in 2014.
Russia’s navy has announced war games in the Black Sea, a day after President Vladimir Putin accused Ukraine of trying to provoke a conflict in the region.
Ukraine denies the allegations, saying the build-up of Russian military on its border could reflect “very bad intentions”.
The country’s restructured dollar bonds were marked slightly lower after falling 1-1.5 cents on Thursday while Warsaw-listed Ukrainian shares fell 2.5% on Thursday and were set to end a four-week winning streak.
Ukraine’s hryvnia currency weakened 0.6% to a seven week low against the dollar.
Russia’s rouble slipped half a per cent against the dollar, though stocks rose almost 1% in line with oil, and while credit default swaps inched off mid-2014 highs hit earlier in the week, Hulea said she did not expect major market losses.
“For more than a year now Russia has been a consensus trade in terms of people being bullish.
So we need to see something really happening rather than a brewing noise in the background, before we see a reversal in appetite towards Russia,” she added.
In central Europe, currencies were firm, with the Polish zloty hovering near four-month highs against the euro and the Hungarian forint at 3-1/2 month highs.
Data showed robust economic growth across the region in the second quarter with Hungary accelerating to 2.6 % and Romania to 6%, while Poland grew 3.1%.
South African markets were weaker as investors pulled the rand and local bonds back from multi-month highs in anticipation of stronger US data.
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Also in today's EMEA regional roundup: Teléfonica sells 40% of Telxius to investment group; OBS lands smart cities deal in Qatar; 3 enters the Matrixx; balloon goes up for EE.