Emerging market equities rose yesterday, helped by a strong performance in eastern Europe and higher oil prices which lifted the Russian rouble and other oil exporters after a weak session in Asia.
The benchmark emerging stocks index was up 0.3% after decent data from emerging Europe helped bourses across the region rally, although the broad EM index was still on course to end the week down around 1.7%.
Prague stocks rallied 1.27% after jobs data whilst the Budapest bourse touched fresh eight-year highs after Hungary posted a better-than-expected trade surplus for February.
Turkish stocks also rose 0.4% after industrial production rose 5.8% year-on-year in February. Ratings agency Moody’s may review Turkey’s sovereign credit rating after the market closes on Friday. It currently has it on a negative outlook.
Bucharest was up 0.38% after the Romanian economy expanded 3.8% year-on-year in the fourth quarter of 2015, slightly higher than a preliminary estimate.
Ratings agency Standard & Poor’s will review Romania’s rating after the market closes. This is being closely watched as there are worries over the budget, wage hikes and tax cuts.
Romania’s central bank has also warned against proposed legislation that would allow property buyers to walk away from their mortgage debts.
The strong performance in Europe followed a weak session in Asia, with Chinese mainland stocks falling 0.7% after home sales plunged in the property markets of Shenzhen and Shanghai.
Asian bourses and currencies had also come under pressure after US Federal Reserve chair Janet Yellen said the US economy was on a solid course and still on track to warrant further interest rates rises.
“Volatility is picking up again,” said Manik Narain, emerging FX strategist at UBS. “Overall, there is some nervousness coming back in and you’re seeing that in whipsaw trading in the market.”
He added that weaker base metals prices, with copper on course for its largest weekly loss since January had led some investors to turn more cautious on the growth outlook for China.
But a strong rally in oil prices of almost 3% lifted Russian dollar-denominated stocks 1.9% whilst the rouble firmed 1.3% against the dollar.
Other oil producers also benefited, with the Kazakhstan tenge up 0.24%. Even the South African rand, which has lost almost 3% this week due to a deteriorating economic and political backdrop, firmed around one%.
South Africa has successfully issued a $1.25bn 10-year bond this week, at 335 basis points over US Treasuries.
Regis Chatellier, global EM sovereign strategist at Societe Generale, noted that the new bond was oversubscribed twice, but said this was not that surprising as the market had been pretty bullish for a while. “But compared to the rest of the curve, investors asked for an extra premium,” he added.
A ceasefire between Azerbaijan and Armenia over Nagorno-Karabakh appeared to be holding as Russia staked a claim to be lead mediator. Argentina will begin meeting investors on Monday as it returns to the international bond market for the first time in 15 years, with the new issuance expected to raise $12bn or more.
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