(There will be no London-based emerging markets report on Monday, May 29, due to a public holiday in the UK)
By Sujata Rao
LONDON, May 26 (Reuters) - Emerging stocks inched to two-year highs on Friday, taking their cue from a strong Wall Street close, while China’s yuan shrugged off a ratings downgrade from Moody’s for its biggest weekly gain since early-December.
Emerging assets have taken heart in recent days from relatively dovish minutes from the last U.S. Federal Reserve meeting, though disappointment over the scale of oil supply cuts announced by OPEC kept the MSCI emerging equity index from adding significantly to gains.
The benchmark has, however, posted a rise every month in 2017, for year-to-date gains of almost 18 percent and while currencies were flat on the day versus the dollar, most are up for the third straight week.
Emerging market funds continue to receive new money, JPMorgan said, though its data showed inflows halved from the previous week to $1.2 billion for equity funds and $1 billion coming into emerging debt funds.
With the VIX volatility gauge at two-week lows and just off recent multi-year troughs, the backdrop remains positive for emerging markets, said Cristian Maggio, a strategist at TD Securities.
“As long as volatility remains low, emerging currencies provide a quite high carry, and many short-term traders don’t care about the fundamentals, they just care about the money they make for the next day and it remains an environment where they can make quite a bit of money,” Maggio said.
Currency gains were led by the yuan which hit the firmest level since February with a weekly 0.3 percent gain. This is partly down to hefty dollar sales by Chinese banks on Thursday following the Moody’s rating cut.
The sudden surge in the yuan shows that the Chinese authorities might “attempt to give a warning to the RMB bears who speculate on RMB depreciation following the downgrade on China”, said Ken Cheung, Asian FX strategist at Mizuho Bank in Hong Kong.
The yuan was also lifted by flows from overseas as the offshore yuan rose to the strongest level since February after Hong Kong’s overnight yuan borrowing rate jumped to six-month highs.
The South African rand slipped off one-month highs hit after the central bank kept interest rates on hold while local bond yields rose. Leaders of the ruling African National Party (ANC) are to meet over the weekend and rumours swirled of President Jacob Zuma’s removal.
This has been denied by the party and Maggio called it wishful thinking.
“The odds that Zuma will be ending his term prematurely are increasing, but I don’t think it means this will happen over the weekend. So we may see a correction in the rand next week,” he added.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1014.71 +0.16 +0.02 +17.68
Czech Rep 1013.40 +3.43 +0.34 +9.96
Poland 2335.93 -22.48 -0.95 +19.92
Hungary 34407.73 +58.62 +0.17 +7.51
Romania 8616.64 +26.46 +0.31 +21.62
Greece 773.73 +1.91 +0.25 +20.21
Russia 1073.54 -9.98 -0.92 -6.84
South Africa 47561.65 -10.51 -0.02 +8.34
Turkey 97786.64 +73.70 +0.08 +25.15
China 3110.16 +2.33 +0.08 +0.21
India 30984.79 +234.76 +0.76 +16.37
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.43 26.44 +0.01 +2.17
Poland 4.18 4.17 -0.08 +5.42
Hungary 307.04 307.03 -0.00 +0.58
Romania 4.55 4.55 -0.05 -0.38
Serbia 122.55 122.62 +0.06 +0.65
Russia 56.79 56.87 +0.16 +7.89
Kazakhstan 311.48 310.71 -0.25 +7.12
Ukraine 26.34 26.27 -0.25 +2.53
South Africa 12.95 12.92 -0.20 +6.05
Kenya 103.20 103.20 +0.00 -0.80
Israel 3.57 3.57 -0.01 +7.92
Turkey 3.58 3.57 -0.27 -1.36
China 6.86 6.87 +0.08 +1.18
India 64.48 64.55 +0.11 +5.38
Brazil 3.27 3.27 -0.05 -0.65
Mexico 18.48 18.50 +0.13 +12.09
Debt Index Strip Spd Chg %Rtn Index
Sov‘gn Debt EMBIG 321 1 .01 7 85.93 1
All data taken from Reuters at 08:46 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (additional reporting by Karin Strohecker, editing by Angus MacSwan)