Chinese mainland shares rose nearly 1% yesterday, enjoying their best week since November after MSCI’s decision to include them in its benchmark index, whilst South Africa’s rand firmed after parliament backed the central bank’s independence.
China Shenzen-listed stocks, are up almost 3% for the week, after MSCI gave the green light for the inclusion of 222 China-listed stocks, paving the way for some $20bn of inflows.
The market hit an 18-month high on Thursday in the wake of the decision.
But the yuan was set for its biggest weekly fall since early March, down 0.4%, hampered by higher corporate demand for dollars and weaker guidance from the central bank.
MSCI’s emerging stocks index gained 0.2% and was set for its best weekly performance in a month, up 0.7%, with index heavyweight South Korea hovering near an all-time high.
“Emerging markets are being helped by the fact (US) Treasuries are holding very well — the 10 year was 2.60% in mid-March and it is now 2.16,” said Regis Chatellier, sovereign credit analyst at Societe Generale.
“There is not much pressure from the Fed side so people are happy with that.
Also the growth trend in emerging markets is positive.”
Emerging equities have attracted $1.7bn this week and emerging bonds $2.2bn, according to JP Morgan.
Cumulative year-to-date inflows now stand at $40.2bn for equities and $62.5bn for bonds.
The strong investor appetite has allowed Argentina to sell a century bond whilst Belarus, rated B-/Caa1, raised $1.4bn, with a 10-year tranche at 7.625%.
The average yield spread of emerging sovereign dollar bonds over US Treasuries has fallen 26 basis points since the start of the year to 314 basis points, but Chatellier did not expect this to tighten much further.
“For them to get tighter we need to have commodities going stronger,” he said.
The South African rand firmed 0.4% after parliament said it would launch a court challenge against an anti-graft watchdog’s recommendation of constitutional changes to alter the central bank’s mandate.
The rand is still down 0.8% for the week after the threat to the South African Reserve Bank’s independence.
But stocks rose 0.3% and look set to end the week up 1.3%. Investors have also taken heart from a constitutional court ruling that parliament can hold a secret ballot in a no-confidence vote against President Jacob Zuma.
Russian stocks lost 0.2%, but were set to end the week up around 1.8%, rebounding after last week’s 3.2% sell off.
Russian dollar-denominated stocks were still down 1.1% for the week, after touching their lowest level since November 2016.
A low oil price is weighing on producers, with Brent futures set for their worst first-half decline in two decades.
But the rouble firmed 0.7%, helped by oil prices edging back above $45 a barrel.
Overnight Mexico’s central bank raised interest rates by a quarter percentage point to 7%, as expected, but hinted this could be the last rise.
The peso firmed 0.3% against the dollar after gaining around 0.7% on Thursday.

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