LONDON Dec 29 A dollar retreat helped emerging
stocks rise to 10-day highs on Thursday and currencies
strengthened, led by the rouble which appeared on the cusp of
breaking under 60 per dollar for the first time in 14 months.
While emerging markets are pressured by fears about
spiralling capital flight from China, state banks' support
helped the yuan firm slightly against the dollar, away from
recent 8-1/2-year lows.
Offshore yuan however fell to its lowest levels since
trading started in 2010, to around 6.98 per dollar. Bets
are growing that offshore yuan will weaken sharply, as traders
anticipate a rush by Chinese citizens next month to cash in
their annual $50,000 foreign exchange conversion quota.
But buying of Hong Kong-listed tech stocks helped the equity
index higher. That lifted MSCI's emerging equity index 0.4
percent to 10-day highs, despite Wednesday's Wall Street selloff
as markets focused on lower U.S. Treasury
yields and a pullback in the dollar.
Emerging currencies mostly strengthened versus the
greenback, with focus on the Russian rouble which firmed 0.3
percent to trade just off 14-month highs. The rouble is
up 21 percent versus the dollar this year, neck-and-neck with
Brazilian real to be the top EM currency performer of 2016.
"The likelihood is rising that the central bank will
consider some FX intervention. It won't be very aggressive but
you would expect, given the loss in the reserve funds, that they
would look to use the opportunity to lean against this strength
in the currency," UBS strategist Manik Narain said.
He noted, however, that while authorities were keen to
rebuild depleted reserves, they would tread carefully on
countering rouble strength which is key for meeting the 4
percent end-2017 inflation target.
"So you are probably talking of modest intervention rather
than a sea change," Narain added.
On Russian bond markets, 10-year yields touched two-month
lows after a sharp fall at Wednesday's auctions
when the Treasury almost completed its 2016 borrowing plans.
Yields have tumbled almost 60 basis points this month as oil
prices have risen.
There are also clear signs of economic recovery, with
manufacturing activity expanding this month at the fastest rate
since March 2011.
The Turkish lira also rose 0.15 percent but stayed near
record lows, amid fresh evidence of the economy's woes. Its
economic confidence index tumbled more than 18 percent to a
record low in December, while November tourist arrivals slumped
21 percent year-on-year .
In eastern Europe, the Romanian leu touched a new six-month
low against the euro as Romania remains without a
government more than two weeks after general elections
For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml
For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
(Editing by Keith Weir)