China rebound hopes lift EM stocks, Poland seen holding rates
Emerging market stocks hit three-week highs on Wednesday on hopes of an economic boost to China following the easing of its zero-COVID policy, while a softer dollar supported EM currencies ahead of the release of the Federal Reserve’s meeting minutes.
The MSCI’s EM equities index rose 1.0% to its strongest level since mid-December, boosted by surging shares in Hong Kong, South Korea and the Philippines .
Hong Kong’s Hang Seng index closed up 3.2% at a more than five-month high, with real estate stocks among the top gainers following forecast-beating December sales in China and chatter over new regulatory support for the sector.
China’s yuan hovered near a four-month high and stocks gained marginally after China’s finance minister pledged to step up fiscal expansion this year to spur an economy hurt by the COVID-19 disruptions.
Meanwhile, state media in China pledged a “final victory” over COVID-19, boosting market bets that China’s relaxation of rules and the reopening was irreversible.
“Authorities have effectively accepted that the economic benefits of reopening outweigh the costs of an immediate health crisis,” Louise Loo, senior economist at Oxford Economics said in a note.
“But a normalization in economic activity will take some time, requiring among other things a change in public perceptions towards contracting Covid and vaccine effectiveness.”
Further brightening the mood in markets were fresh signs of cooling inflation in the euro zone.
Aggressive tightening of monetary policy to tame inflation, a stronger dollar and global recession concerns weighed heavily on emerging market assets in 2022, pushing the EM equities index to its worst year since the financial crisis of 2008.
The dollar slipped against its major peers on Wednesday ahead of the release of the Fed’s December meeting minutes and economic data that are likely to sway expectations around the central bank’s rate-hike plans this year.
The Polish zloty firmed 0.8% to 4.4 versus the dollar as traders bet the central bank will hold interest rates at 6.75% at a rate-setting meeting later in the day.
The slowdown in Poland’s manufacturing sector eased in December, a survey earlier this week showed, while prices for input materials rose at a slower rate than in previous months.
Warsaw shares up 1.2%, hit their strongest level in over six months and led gains in stock markets across central Europe. For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX
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