February 15, 2017 / 10:17 AM / in 8 months

EMERGING MARKETS-Stocks hit 19-month high, rand and rouble roar

* Emerging markets climb for 9th day in 11 to 19-month high

* Rand under 13 per dollar; rouble, real, peso, EGP strong

* Average local currency gvt debt yields lowest since Nov.

By Marc Jones

LONDON, Feb 15 (Reuters) - Emerging market stocks hit a 19-month high on Wednesday, with even hints of looming U.S. rate hikes and the dollar’s longest unbroken rise since 2012 unable to knock them off their stride.

MSCI’s 26-country emerging market equity index hit its latest peak thanks to its ninth climb in the last 11 days, taking its gain since the end of December to almost 12 percent.

Many of the big EM currencies and bond markets also continued to shine.

South Africa’s rand rose 0.7 percent to go under 13 per dollar for the first time since October 2015, while Russia’s rouble was up, just about, for a tenth day in the last 11 and at its highest since July 2015.

Aberdeen Asset Management’s Kevin Daly said the across-the-board strong performances were down to a “goldilocks” combination of factors, including broadly subdued global bond yields, inflation and improving growth.

“If you add it up its a pretty strong backdrop for higher yielding EM assets,” Daly said.

“Markets maybe are also picking up on some of the more conciliatory comments from Trump on China on the one China policy and that he hasn’t followed through on the currency manipulation talk.”

Egypt’s pound has been roaring too as investors have swept back in following its devaluation late last year. It climbed 0.3 percent on the day taking its surge over the last couple of week to almost 17 percent.

The upbeat sentiment also kept the cost of insuring exposure to South African and Turkish debt pinned near two-year and five-month lows respectively.

Data from Markit showed that five-year credit default swaps (CDS) for South Africa were trading at 190 basis points (bps), close to the 188 bps level hit on Tuesday which was the lowest since early March 2015.

South African headline inflation slowed to 6.6 percent in January, weaker than forecast, data there showed. Turkey’s Finance Minister Naci Agbal meanwhile said its budget spending in January was in line with targets.

RAMPANT REAL, PERKY PESO

William Jackson, a senior emerging markets economist with Capital Economics, pointed to the recent rebound in the Turkish lira which was barely budged on the day at 3.65 per dollar.

“It might be that the sell-off we saw in January caused it to overshoot and it has recouped some of those losses.”

“The central bank did raise interest rates - it wasn’t a convincingly large rate hike but it still showed it was able to raise interest rates. That may have helped to ease some of the market’s fears.”

Nigeria’s recently sold bond continued to climb while in central and eastern Europe, Hungary’s stock market hit its latest record high, Czech shares continued their strong start to the year, though Poland’s took a breather.

Overnight in Asia, there had been mild weakness for the region’s currencies such as the South Korean won, Thai baht and Philippine peso after the dollar got a boost from Federal Reserve Chair Janet Yellen who said another U.S. rate hike was likely in one of its upcoming meetings.

In Latin American, though, the Brazilian real hit its strongest level in more than a year and a half, following a rise in capital inflows and after the central bank resumed currency intervention following a two-week pause.

“The Mexican peso has also been doing very well,” said Aberdeen’s Kevin Daly. “It looks like the diplomacy (with the U.S.) is improving a little.” The peso is up almost 9 percent since Mid-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 ) (Reporting by Marc Jones; Editing by Tom Heneghan)

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