Stronger-than-expected Chinese economic growth data and reduced chances of another US rate rise this year lifted emerging stocks to their highest since the end of April 2015 yesterday, tracking gains in developed markets.
MSCI’s benchmark emerging markets equity index rose 0.4% after data showed the world’s second largest economy grew by 6.9% in the second quarter, beating analysts’ forecasts.
The index has risen almost 5% in the last five trading days.
William Jackson, senior emerging economist at Capital Economics, also highlighted stronger-than-expected Chinese industrial production, retail sales and fixed investment data.
“Some of the lower profile data suggests the economy is pretty strong,” he said.
“Despite all the fears about politics in developed and emerging markets, the economic environment is relatively favourable with relatively strong global demand supporting exports, the fiscal austerity seen in some countries easing off, and some countries that have been in recession coming out of that,” he added.
Asian stocks hit a two-year high with Hong Kong shares up 0.3%, but Chinese mainland stocks fell over 1%, after a sharp sell-off in small caps.
The Chinese yuan firmed, however, after the central bank lifted its official guidance for the currency’s midpoint to an 8-1/2 month high.
In emerging Europe, Hungarian stocks reached new all-time highs, Polish shares gained 0.6% to a one-month high, while Turkish and Czech stocks gained 0.4%.
Emerging markets were also underpinned by the diminishing chances of a third US interest rate rise this year after Friday’s weak inflation data and a surprise fall in US retail sales.
The dollar fell to 10-month lows and US Treasury yields slipped to multi-week lows in the wake of the data, while stocks rallied hard.
Federal Reserve Chair Janet Yellen also indicated on Wednesday that the Fed’s rate hikes could be gradual rather than fast.
Emerging currencies posted small moves.
The Polish zloty lost 0.1% against the euro after weekend protests against the ruling party’s judicial reforms.
“It’s a worrying continuation of a trend with the Law and Justice party...but it doesn’t seem to have affected the zloty in a big way today,” Jackson said.
“The dominant factor here is you have quite a strong external position for the Polish economy...so there is no fundamental reason for it to weaken sharply or in any sustained way.”
The Turkish lira slipped 0.3% against the dollar after President Tayyip Erdogan stepped up his attacks on the European Union on Sunday and vowed to bring back the death penalty if parliament passed it.
The South African rand firmed 0.2% to a two-week high, helped by higher precious metals prices while the rouble slipped 0.2% but remained near a two-week high, underpinned by higher oil prices.
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