Emerging stocks rose half a per cent yesterday, rebounding after two loss-making sessions as investors absorbed the likelihood of slower China growth and a March interest rate rise in the United States.
Bourses in Asia and Russia chalked up solid gains while Turkey’s stock index roared 1.4% higher to a two-year high, led by shares of exporters that benefit from currency weakness.
Mainland China stocks closed 0.5% up thanks to a jump in tech shares after Premier Li Keqiang identified innovation as key to overhauling the economy at the opening of the annual meeting of the country’s parliament.
However, officials also cut the economic growth target for the world’s number two economy to around 6.5% for 2017 from a range of 6.5-7% in 2016.
A steady dollar not far off seven-week highs weighed on currencies as investors also prepared for a possible US Federal Reserve interest rate rise later in March making it more costly for developing governments and companies to borrow.
“There was a bit of an upside for US yields last week, but maybe the rate hike has been front-loaded,” said Sebastian Barbe, emerging markets strategist at Credit Agricole.
“Most of the Fed officials are still pointing to the fact that the rate hike process will be very much a step by step process — so it is not the end of the world for emerging markets, and it is mostly priced in.”
Markets are pricing in about a 90% chance the Fed will raise interest rates by 0.25 percentage point at its meeting on March 14-15, with another rate hike fully priced in by September.
Oil exporter Russia saw the rouble shrug off the crude price fall to strengthen 0.4% while copper producer South Africa saw the rand match those gains.
But Turkey’s lira weakened 0.3% amid mounting disagreement between Ankara and Berlin over Turkey’s effort to campaign among its German diaspora to back a vote to enhance President Tayyip Erdogan’s powers.
“There are rising tensions with Germany, and that is adding to some uncertainty that has grown over the last two months, which means foreign investors have become more reluctant to buy Turkish assets,” Barbe added.
Ukraine’s euro-bonds gained across most of the curve following five days of falls for most issues after the International Monetary Fund said it had an agreement with Kiev on an updated memorandum under a $17.5bn programme.
That paves the way for the fund to consider disbursing the fourth loan tranche later in March.
Shares in Aberdeen Asset Management, an emerging market focused money manager, rose 4.5% after news that Standard Life had agreed an £11bn merger.
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