A dollar on multi-month lows and upbeat economic data helped emerging stocks extend gains for an eighth straight session yesterday, but currencies took a breather from their recent rally.
MSCI’s emerging stock index added 0.5% and hit a fresh 27-month high, having soared nearly 23% since the start of the year — the benchmark’s best annual performance since 2009.
Bourses across Asia chalked up stellar gains. China mainland stocks jumped as much as 1.7% as investors piled into blue chips after robust economic growth data and on expectations that Beijing is stepping up efforts to reform lumbering and inefficient state companies.
South African stocks rallied more than 1%, their best daily gain in two weeks, while Turkey’s index jumped 0.7% to touch a fresh record high.
Investors’ appetite for riskier assets had been whet by the dollar veering lower and Treasury yields declining after the collapse of the US Republicans’ push to overhaul healthcare, which cast fresh doubt over President Donald Trump’s ability to pass promised reforms.
Adding to the chipper mood were decreasing odds of the US Federal Reserve hiking interest rates and data showing China’s economy expanded at a faster-than-expected clip.
“Most emerging markets are doing quite well at the moment, especially in Asia, the figures for China are positive,” said Marijke Zewuster, head of emerging markets research at ABN Amro.
“If you look at the underlying figures they are relatively strong at the moment — the global environment is still favourable for emerging markets.”
Meanwhile currencies took a breather, with Turkey’s lira and South Africa’s rand easing 0.3% after 5 straight days of gains.
Data out of South Africa showed that headline consumer inflation slowed more than expected to 5.1% in June.
“With South Africa, the problem is there is a lot of structural weakness, so rate cuts will not really help them,” said ABN Amro’s Zewuster, adding the latest reading was still not a low figure.
“The central bank needs to be extremely careful.” China’s yuan also snapped an eight day winning streak despite the strongest official fixing in almost nine months as domestic businesses picked up dollars on the cheap.
Meanwhile across emerging Europe, the Czech crown climbed to its strongest level against the euro since the central bank freed it from a currency cap in April as investors were betting on the chances of a rate hike this quarter.
Currencies elsewhere in the region weakened against the euro, with Poland’s zloty slipping 0.1%. Poland’s government yesterday moved one step closer to passing a contested law to reform the Supreme Court after the lower house voted to send the bill to a parliamentary committee.
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