LONDON, Dec 9 (Reuters) - Emerging market equities slipped from one-month highs on Friday but were set for their best week since September, with Russian shares at record highs, but South Africa’s rand fell after data showed a wider current account gap.
A risk-appetite recovery since the start of December, combined with higher commodity prices and better manufacturing and trade data, has lifted emerging market assets. The benchmark MSCI index is on course to end the week nearly 3 percent higher.
That is its best weekly performance since late September, helped by Russian rouble-denominated stocks pushing to record highs.
Moscow shares are up 3.6 percent this week, their best performance since February. Higher oil prices, hopes that sanctions will be lifted, and the sale of a stake in Rosneft to Glencore and the Qatar Investment Authority have all helped stocks.
“Russia is still looking attractive. Oil should be relatively stable next year,” Rabobank economist Piotr Matys said.
“They have a central bank which is cautious when it comes to cutting rates and an economy which is recovering from recession, and if you look at political events in Europe, Russia seems like an oasis of stability.”
On Friday, however, emerging market stocks slipped 0.2 percent, crimped by higher U.S. and European bond yields after the European Central Bank extended its bond-buying scheme but said it would buy fewer assets starting in April.
The market is awaiting the U.S. Federal Reserve’s rate-setting meeting for signals on the pace of policy tightening next year. A 25-basis-point rise is expected next week.
Matys expects only one U.S. rate rise in 2017. That should help emerging market assets, which he said had already gained as markets pared earlier expectations of three to four increases.
“We think markets got ahead of themselves, and as long as the Fed signals they will raise rates gradually in 2017, we won’t witness significant capital outflows,” Matys said.
Emerging market bond fund outflows more than tripled to $2.6 billion this week from the previous week, JPMorgan said. Emerging market equity outflows rose to $1.5 billion.
But year-to-date flows to emerging market bonds and equities are $45.7 billion and $7.8 billion respectively, JPM said.
Chinese mainland shares rose 0.6 percent on Friday as data showed producer prices rising at the fastest pace in more than five years in November, boosting industrial profits.
That followed Thursday data showing imports grew at the fastest pace in more than two years in November.
But the yuan touched 6.9 per dollar in early trade after the central bank lowered its midpoint by the most in seven weeks to reflect a stronger dollar. Chinese state banks then jumped in to temper the weakness.
Korean stocks and the won slipped around 0.3 percent after parliament voted to impeach President Park Geun-Hye, raising risks to the economy .
The South African rand weakened as much as 0.7 percent after the current account deficit widened to 4.1 percent of gross domestic product in the third quarter, from a revised deficit of 2.9 percent in the second quarter.
The Turkish lira also slipped 0.6 percent after two days of gains following a raft of defensive steps unveiled by the government.
“Investors were looking forward to measures which would stabilise the currency, but this was not delivered. We think that Turkish lira assets remain in a negative feedback loop,” JPMorgan analysts told clients, calling for more rate increases to break the cycle.
The Czech crown firmed after inflation accelerated to its highest since June 2013 in November, raising expectations the central bank’s weak crown policy would be scrapped next year .
Emerging market sovereign dollar bond yield spreads stood at 345 basis points over Treasuries, the tightest in a month and almost 20 bps tighter than week-ago levels.
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For RUSSIAN market report, see ) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 877.32 -2.00 -0.23 +10.47
Czech Rep 901.11 +1.54 +0.17 -5.77
Poland 1906.56 -14.52 -0.76 +2.55
Hungary 30495.16 -134.32 -0.44 +27.48
Romania 6863.72 +2.32 +0.03 -2.01
Greece 639.79 -8.48 -1.31 +1.34
Russia 1102.56 +5.17 +0.47 +45.64
South Africa 44038.45 +147.38 +0.34 -3.84
Turkey 75862.90 -66.43 -0.09 +5.77
China 3232.07 +16.70 +0.52 -8.68
India 26757.74 +63.46 +0.24 +2.45
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.03 27.05 +0.09 -0.11
Poland 4.44 4.44 +0.05 -3.99
Hungary 314.29 314.15 -0.04 +0.11
Romania 4.50 4.50 -0.06 +0.45
Serbia 123.19 123.24 +0.04 -1.40
Russia 63.01 63.30 +0.47 +15.78
Kazakhstan 333.95 333.70 -0.07 +1.96
Ukraine 25.84 25.63 -0.81 -7.31
South Africa 13.66 13.64 -0.15 +13.19
Kenya 102.00 101.85 -0.15 +0.20
Israel 3.81 3.81 -0.09 +1.91
Turkey 3.46 3.44 -0.57 -15.74
China 6.90 6.88 -0.35 -5.93
India 67.38 67.54 +0.24 -1.75
Brazil 3.38 3.38 +0.00 +17.31
Mexico 20.36 20.29 -0.36 -15.68
Debt Index Strip Spd Chg %Rtn Index
Sov‘gn Debt EMBIG 371 -3 .01 7 34.58 1
Additional reporting by Sujata Rao, editing by Larry King