Emerging market assets strengthened yesterday amid some optimism over the prospects for a “phase-one” Sino-US trade deal, although a raft of mixed signals earlier in the week kept gains constrained.
While fears of a possible delay in reaching a US-China trade deal had rattled investors earlier, a Bloomberg report on Wednesday as well as some positive comments from US President Donald Trump saw markets back in the black.
MSCI’s index of developing world stocks rose about 0.4%, having touched a more than one-month low on Wednesday.
Chinese stocks, which are heavyweights on the index, closed at a one-week high, while the yuan also strengthened against the dollar. Turkish stocks were among the strongest performers over the session, rising close to levels not seen since April this year.
Indian shares trimmed some of the day’s gains after the Reserve Bank of India kept its benchmark interest rate unchanged, in contrast to market expectations.
The bank also slashed its growth forecast for the economy.
The rupee strengthened slightly against the dollar.
“Severity of the growth slowdown may warrant further rate cuts down the road,” Citi analysts wrote in a note. “Given the limited room on the fiscal side and struggling demand for bonds, any meaningful growth revival may need further monetary policy support.”
Other emerging market currencies also strengthened against the dollar, which fell to a one-month low on Wednesday following weaker-than-expected US private sector job growth data.
Russia’s rouble touched a more-than one week high to the dollar, helped by a surge in oil prices ahead of an Opec meeting, as well as lower foreign currency purchases by the finance ministry.
The Polish zloty rose slightly against the euro after the country’s central bank held rates as expected, and said they would likely be on hold until mid-2022.
A Reuters poll said emerging market currency gains will likely be dominated by high-yielding currencies rather than low-risk bets next year, as economic growth recovers in the face of lower interest rates.
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