Reuters/London
Emerging equities hit new 17-month highs yesterday, buoyed by strong post-election gains in Indonesia and a rise in Russian stocks after a conciliatory tone from the Kremlin over the downed Malaysian Airlines jet.
A batch of positive earnings in Europe and the US along with robust US economic data have lifted sentiment and somewhat offset potential geopolitical repercussions from last week’s shooting down of a Malaysian Airlines plane over eastern Ukraine.
Political developments within emerging markets have also helped, with Indonesia declaring reform-minded Joko “Jokowi” Widodo as the winner of its presidential election. Jakarta shares rose nearly 1% while the rupiah set a two-month high.
“This is positive news, when both the equity markets and the rupiah strengthen. As per volatility and return potential versus its EM peers, (Indonesia) offers the best carry return,” said Tanya Rawat, analyst at Arqaam Capital in Dubai.
The cost of insuring Indonesian sovereign debt against default dropped yesterday with five-year credit default swaps dropping to 143 basis points from 149 bps on Tuesday, according to financial data provider Markit.
The Indonesian result also means this year’s hectic election cycle in emerging markets is continuing on a positive note after the win of another reform-minded leader in India, analysts say.
Brazilian equities had hit 16-month highs on Tuesday as polls showed left-leaning President Dilma Rousseff continuing to lose popularity, boosting the chances of a more reformist government after October elections.
Those gains have boosted MSCI’s emerging market equity index to levels last seen in early 2013 for year-to-date gains of 7.6%, on a par with Wall Street.
Russian shares were more than 1% higher a day after comments from President Vladimir Putin stating Russia would try to ensure that Ukrainian separatists co-operate with an investigation into the jet crash.
US intelligence officials said on Tuesday they believe pro-Russian separatists likely shot down Malaysia Airlines Flight MH17 “by mistake.”
“The new development is that at least the US is recognising that there is no direct involvement of Russia and it was a mistake by Ukrainian separatists,” said Commerzbank analyst Thu Lan Nguyen.
Russian CDS dropped 6 basis points to 202 bps and the rouble rose 0.4% to the dollar to a near one-week high.