| LONDON, March 7
LONDON, March 7 Emerging stocks rose to a
five-day high on Tuesday and currencies mostly firmed, as a
March U.S. rate rise seems to have been priced in and Chinese
reserves data offered some reassurance on financial stability in
the world's No. 2 economy.
MSCI's emerging stocks index gained 0.3 percent
for its second day in the black while average yield spreads on
emerging sovereign bonds over U.S. Treasuries
narrowed 2 basis points (bps) to 300 bps, the lowest since
William Jackson, senior emerging markets economist at
Capital Economics, said markets appeared to have absorbed the
possibility of a March rate rise by the U.S. Federal Reserve.
"Also, the economic data are improving and perhaps the
concerns of a sharp lurch towards protectionism in the U.S. have
eased off a bit," he added.
There are signs that investors in Asia have begun trading on
U.S. President Donald Trump's promises of tax cuts and higher
infrastructure spending that will stimulate growth.
The Asian manufacturing markets delivered a strong
performance with Hong Kong up 0.4 percent, and 0.6
percent gains on the Korea and Taiwan bourses.
Mainland Chinese shares also rose 0.2-0.3 percent
after data showed China's foreign exchange reserves
unexpectedly rose for the first time in eight months in
February, rebounding above $3 trillion as a regulatory crackdown
helped staunch capital flows.
China has tightened rules on moving capital outside the
country in recent months to support the yuan. The Chinese
currency gained 0.2 percent in February, and is up 0.8
percent so far in 2017.
"We have seen capital control measures from the Chinese
government ... as a result the situation has stabilised and is
under control for now," said Carl Wong, co-manager of the RAM
Asian Bond Total Return Fund, based in Hong Kong.
Over a 12-month time horizon, however, he expects reserves
to fall further: "The Chinese government wants to stop the
outflow but the desire of Chinese citizens to move capital out
of the country is very strong," Wong added.
The yuan fell past the key 6.9 per dollar level on Tuesday
after the central bank guided its official yuan midpoint to its
weakest since mid-January.
Other currencies, such as the Turkish lira and
Russian rouble, firmed as the dollar rally paused,
with the lira up 0.8 percent to five-day highs, the rouble
firming 0.2 percent.
Turkey's central bank has pushed up the average cost of
funding by 20-25 basis points in the last week against a
background of rising inflation and U.S. Federal Reserve rate
"Perhaps the selloff was exacerbated by concerns about
political interference at the central bank and now they have
tightened maybe those fears have eased somewhat," Jackson said.
"Markets may be a bit more confident that if the lira comes
under further pressure with the Fed tightening, then the central
bank will respond in time."
Turkish five-year credit default swaps narrowed 2 basis
points (bps) from Monday's close to 240 bps, according to Markit
data, a one-week low.
The rand has been supported by a rebound in
commodities prices and is up almost 6 percent year-to-date. But
it trimmed some of those gains after data showing South Africa's
economy contracted by 0.3 percent in the last 2016 quarter
Central European markets were awaiting a speech from Czech
central bank chief Jiri Rusnok on the upcoming exit from the
weak crown policy. Data confirmed the pressure faced by the
central bank to continue this policy - it purchased a record
14.48 billion euros in January.
For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml
For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see)
(Additional reporting by Sujata Rao; Editing by Dominic Evans)