China data, weak dollar send EM stocks to 1-week high
London (April 13) A weaker U.S. dollar and a fall in Treasury yields helped emerging market assets advance on Thursday, with stocks up at one-week highs and set for a second straight week of gains.
Stronger Chinese export data also lent support.
U.S. President Donald Trump's comments that the dollar was too strong and he would like to see U.S. interest rates stay low pushed the dollar 0.5 percent lower against a basket of currencies while 10-year U.S. Treasury yields fell to a five-month low. This offset investor jitters over Syria, North Korea's nuclear threat and the French elections and lifted MSCI's benchmark emerging equities index 0.5 percent.
South Korean stocks, which had suffered earlier in the week, were the strongest performer in the region on Thursday, up 0.9 percent, while the won firmed 0.4 percent to a one-week high. The central bank kept its policy rate unchanged at 1.25 percent for a 10th straight month as expected, and upgraded its growth outlook. Emerging markets were also supported by forecast-beating Chinese trade data, which confirmed that global demand was picking up. March exports rose 16.4 percent from a year earlier, while imports increased 20.3 percent, both exceeding market expectations. "China has been the leader of the emerging market trade rebound," said Manik Narain, an emerging FX strategist at UBS.
"The health of the Chinese economy is definitely taking on added importance for emerging markets more broadly because we have not seen a pick-up in imports from U.S. and Europe."
China's yuan rose 0.2 percent to two-week highs after the central bank set a sharply firmer midpoint and Trump backed away from labelling China a currency manipulator. Narain noted the bounce in Asian currencies and said Trump's comments on China may have played a role: "For some of these markets it may reduce some concerns about trade protectionism."
Mexico's peso , which has borne the brunt of investor fears over punitive tariffs due to Trump's campaign rhetoric, also firmed 0.5 percent against the dollar to trade at its strongest level since Trump's election win last November.
However, South Africa's rand was an underperformer, weakening 0.4 percent and snapping a two-day winning streak. South Africa's parliament said on Wednesday that a motion of no confidence in President Jacob Zuma had been postponed until a court decides whether it should be taken by secret ballot. Meanwhile the yield premium paid by emerging market sovereign bonds over U.S. Treasuries remained elevated at 318 basis points. This was up 12 basis points from April 7 when the U.S. carried out a missile strike against Syria, causing riskier assets to sell off as investors sought out safe havens.
Emerging Europe stock markets also delivered a patchy performance, with Russian shares down 1.5 percent to 8-1/2 month lows. The index has lost 4.7 percent so far this week, its worst performance since January 2016.
Russia has close ties to Syria's President Bashar al-Assad and the deterioration in relations with the West following the U.S. strike prompted investors to revise their hopes that sanctions against Russia would be lifted soon. Turkish stocks fell 0.2 percent, but the lira touched its strongest level in 10 days ahead of Sunday's referendum on constitutional change.
Source: Reuters
