Oil jump lifts emerging equities, Russian assets
London (May 22) Emerging equities extended gains on Monday, riding a rise in oil prices despite a firmer dollar and mounting political turmoil in Brazil.
MSCI's emerging market benchmark rose 0.9 percent in its steepest daily gain in a month, with stocks in Hong Kong hitting 22-month highs and other Asian bourses , India and Turkey also firming.
Stocks seemed to take little note of North Korea's missile test on Sunday - its second in a week - even though South Korea said this dashed hopes for peace between the neighbours. Emerging markets are likely to be underpinned by solid technicals, said Steve Cook, co-head of emerging market fixed income at PineBridge Investments.
"The inflow story remains robust and global investors are still searching for yields and while we are not cheap versus fundamentals, we still have a yield and spread pick up versus developed markets," said Cook.
"As long as that continues we will still have demand for emerging markets."
Emerging currencies, however, found themselves less able to advance as the dollar firmed after a week of political turmoil in Washington.
But a jump in oil before Thursday's OPEC meeting, which is expected to deliver an extension or deepening of supply cuts, helped currencies of crude exporters such as Russia and Kazakhstan strengthen 0.5 percent against the dollar. . Russian 10-year yields fell to a new 3-1/2-year low.
Russia's Economy Minister Maxim Oreshkin predicted the country would see lower inflation and a smaller budget deficit if OPEC and non-OPEC producers extended their deal. Turkey's lira booked small gains of 0.1 percent after President Tayyip Erdogan was elected leader of the ruling AK Party, a move enabling him to reassert his grip on the party and its legislative work.
Erdogan pledged to fight Turkey's enemies and to keep a state of emergency until peace is achieved against Kurdish and Islamist insurgents. Investors were closely watching Brazil, where pressure is mounting on President Michel Temer, implicated in a corruption scandal, to step down. Temer refuses to resign, saying the evidence against him has been doctored. London-listed ETFs of Brazilian stocks edged lower, though the real hovered unchanged.
Cook of PineBridge described the contagion effect to other emerging markets as "nearly zero".
"Brazil sold off because of political uncertainty but it does not impact Colombia or Peru from a macro perspective and that's the difference from 5-10 years ago," he added.
Source: Reuters
