LONDON, Dec 17 (Reuters) - Emerging stocks rose about 1 percent on Thursday after the United States raised interest rates for the first time since 2006, ending uncertainty that has dogged markets, but a stronger dollar weighed on currencies while Argentina lifted capital controls.
The benchmark emerging equity index climbed to a nine-day high, extending gains for a third session and well on track for solid weekly gains after the U.S. Federal Reserve raised interest rates by 0.25 percent in a well-telegraphed move. The central bank also signalled the pace of policy tightening would be gradual.
“Things played out in the way we had all expected so we can tick this box and move on,” said Michael Bolliger, head of asset allocation, emerging markets, at UBS Wealth Management.
Investors interpreted the move as a sign of confidence in the world’s largest economy, and added to positions across global stock markets.
“The implication from the Fed move is the U.S. economy is on track, which is helping equities and emerging markets,” Bolliger added, whilst cautioning this didn’t mean emerging markets were out of the woods.
Chinese mainland shares gained almost 2 percent to three week highs, Indonesian shares rose over 1.6 percent to a near two week high and Korean stocks climbed 0.4 percent.
But with the dollar firming almost 1 percent against a basket of currencies, emerging market currencies fared less well, with the Turkish lira and the South African rand trading broadly unchanged, while the Russian rouble weakened 0.4 percent as oil continued its decline.
The yuan touched its weakest level since June 2011 after China’s central bank set its daily guidance rate at new a 4-1/2-year low.
And the Singaporean dollar hit its lowest level since Nov. 24 after an unexpected slide in November exports raised concerns over a slowdown in the trade-dependent economy.
Overnight, Argentina said it would lift currency controls and allow the peso to float freely in an attempt to boost the economy, setting the stage for a sharp devaluation. The 2033 dollar bond was down 0.6 percent in early trading on Thursday.
“In the short-term, a float probably means a plunging peso, spiking inflation, and potential recession as the central bank acts to limit the second round impact on inflation,” said Win Thin, global head of emerging market currency strategy at BBH.
The yield premium paid by Brazilian sovereign bonds over U.S. Treasuries on the JP Morgan EMBI Global index widened out yet again, adding another 15 basis points after Brazil lost its coveted investment grade rating from Fitch, the second ratings agency to make such a move this year.
The real and dollar-denominated bonds tumbled amid forced selling after the downgrade. JP Morgan said the ratings-induced selling of Brazilian sovereign bonds could amount to $6.2 billion, adding that much of this had already occurred.
“We expect passive selling of around $800 million to occur at month-end, while the active holdings of $5.35 billion has likely been reduced, but remains at risk,” it said.
Ukraine’s restructured bonds firmed slightly. On Wednesday, the IMF board acknowledged that the $3 billion Eurobond debt to Russia should be treated as sovereign bilateral debt, though Russia said this changed nothing for Moscow.
Hungary’s stocks rose 0.9 percent after the central bank said the budget deficit could come in at 2 percent of economic output this year, below the government’s target.
Polish stocks added another 1.9 percent after the chief executive of Poland’s PKN Orlen was dismissed, and shares in the company rallied over 3 percent.
For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Additional reporting by Sujata Rao; Editing by Mark Potter)