Emerging market equities hovered near two-week highs yesterday, underpinned by rising oil prices, solid Chinese industrial profits and a flat dollar, which also allowed the rand and the lira to firm.
Gains were capped however as investors waited to see if US Federal Reserve chair Janet Yellen would restate the case for a third 2017 interest rate rise when she speaks in London later.
Weak US durable goods orders have raised concerns about tepid growth and slowing inflation, pushing long-dated US Treasury yields to seven-month lows on Monday.
The dollar retreated 0.4% against a basket of currencies.
MSCI’s benchmark emerging stocks index was steady, with a weak opening in emerging Europe offsetting a stronger performance in Asia.
Index heavyweight South Korea hit a record high, buoyed by expectations of a strong second quarter.
Chinese mainland stocks also rose 0.2% to an 18-month high after industrial profits surged 16.7% in May year-on-year.
“China was important but oil has stabilised and that is tempting people to get back into the EM trade,” said Per Hammarlund, chief emerging markets strategist at SEB. “The mood has changed a little bit, and to a large extent it is driven by commodities and oil in particular.” Oil prices rose 1.2% to trade above $46 a barrel, after recent falls.
The Kazakh tenge was one of the main beneficiaries of the rebound, firming 0.7% against the dollar.
The weaker dollar also allowed the South African rand and the Turkish lira to make modest gains, firming around 0.1%-0.2%.
The rand has steadied after volatile trading last week.
Markets were rattled by a call from an anti-graft watchdog for South Africa’s central bank to change its mandate, accusing it of pursuing commercial interests. Investors’ nerves were already frayed over revisions to the country’s mining charter.
Hammarlund said he expected more populist initiatives in the run up to the ruling African National Congress’ party conference in December. “That’s a big political risk for the rand,” he said.
The Russian rouble remained on the backfoot, slipping 0.2%, and shares in Russian business conglomerate Sistema slumped as much as 17% in early trade after a Russian court “arrested” some of its assets as part of a legal dispute with Rosneft.
Overnight Brazil’s top federal prosecutor charged President Michel Temer with taking multi-million dollar bribes but the real was steady in early trade.
“It’s mostly priced in already, but the fact that he will likely survive this is negative for the real,” said Hammarlund.
Brazil’s stocks and currency slipped yesterday after the country’s top federal prosecutor charged President Michel Temer with taking multimillion-dollar bribes. In a document submitted to the Supreme Court, Rodrigo Janot said Temer “fooled Brazilian citizens” and owed the nation millions in compensation for accepting bribes.
The lower house of Congress must now vote on whether to allow the tribunal to try the conservative leader. Traders expect Temer to garner the support of one-third of the lower house needed to block the trial, although some fear his backing may melt away if lawmakers are forced to vote several times to protect the unpopular president.
The vote, which does not yet have a date, is likely to delay the implementation of Temer’s planned reforms of the pension system and labour regulations, seen by investor as key to curb debt and lift long-term economic growth.
The Brazilian real weakened 0.7%, while 5-year credit default swaps widened 2 basis points to 237 basis points. Brazil’s benchmark Bovespa stock index fell 0.3%, dragged down by blue-chips such as lenders Itaú Unibanco Holding SA, Banco Bradesco SA and beer producer Ambev SA. 
Shares of Kroton Educacional SA and Estácio Participações SA ranked among the biggest decliners on lingering concerns that regulators may veto a tie-up between both college operators. Losses in the index were capped, however, by a rally in shares of miners and steelmakers, such as Vale SA and Cia Siderurgica Nacional SA, boosted by soaring prices of metals.
Other Latin American markets were mostly down as traders avoided risky bets ahead of a widely awaited speech by US Federal Reserve Chair Janet Yellen later in the day. Investors will closely monitor her remarks for clues over future monetary policy after a recent batch of mixed economic figures suggested it may be forced to increase rates at a slower pace than expected.