Dubai

EMERGING markets (EMs) may have their work cut out sustaining one of their strongest final quarters in more than a decade.

Prospects for a US stimulus windfall, a successful roll-out of Covid-19 vaccine programmes, a commodity-price boom and even a possible Brexit trade deal were enough to keep the rally on course last week. Indexes of stocks, currencies and bonds registered their seventh successive weekly advance, taking the gain on the MSCI Inc equity gauge since the end of September to more than 17 per cent.

But therein lies a warning. On the two occasions in the past five years when stocks have clocked up such a string of weekly gains, the rally has sputtered. What's more, as of last week, the gauge was at 15 times the projected 12-month earnings of its members, hovering at the 98th percentile of its valuation range of the past decade. And its 15-day relative strength index has been close to or above overbought levels for more than two weeks.

"Navigating markets was extremely challenging in 2020, and 2021 should prove similarly complicated," Societe Generale SA strategists including Jason Daw in Singapore and Phoenix Kalen in London wrote this month. "Right now, the market is filled with euphoria, and that is the path of least resistance, but various events could upset the apple cart."

None of which is to say EMs are headed for the buffers yet. The US$18 trillion of negative-yielding debt swilling around financial markets will do little to curb the relative allure of higher-yielding debt across the developing world, while the dollar's weakening trend will likely continue to underpin currencies. That, in turn, may make the servicing of foreign debt a little easier for nations that have collectively sold an unprecedented US$730 billion in dollar and euro bonds this year.

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Still, as if to underscore the risks that individual emerging-market nations routinely generate, Turkey's central bank is due to hold a key meeting on Dec 24 at which policy makers, in an effort to shore up the lira, are forecast to raise interest rates for a second successive time. Thailand and Egypt are also due to hold policy meetings.

The Bank of Thailand will probably hold interest rates on Wednesday in its final policy meeting this year. The focus will be on possible baht measures as the central bank may announce more steps to cool the currency's rally, according to Bloomberg Economics. The baht climbed to the strongest level since January after Thailand was placed on the US Treasury department's watch list for currency manipulation.

China has kickstarted an effort to inoculate 50 million people ahead of the Chinese New Year. Beijing said it has already administered more than one million coronavirus vaccines since July. Chile has approved emergency use of the Pfizer Inc-BioNTech SE vaccine, and Mexico said it expects to start administering doses this week. Qatar will receive its first Covid-19 vaccine shipment on Monday. Meanwhile, 300,000 people registered to take the jab in Saudi Arabia. Turkey plans to start Covid-19 vaccinations using the Chinese-made Sinovac Biotech Ltd shots as early as next month.

Taiwan was set to announce on Monday its November figures for export orders, a key barometer for the global tech supply chain. Citigroup Inc, which predicts an advance of 10 per cent, said Taiwan's exports are likely to remain strong as the drag in commodities orders likely dissipated while rising prices boost their value. South Korea, which last week said an expected boom in the semiconductor industry will bolster overall growth, said early trade data showed exports continuing to rise in December despite a raging pandemic.

China's loan prime rates - a benchmark for banks' corporate lending rates - were kept steady on Monday, extending a seven-month streak. With a solid rebound in economic activity, Bloomberg Intelligence sees little reason for an adjustment in coming months, although the one-year rate could decline by 10 basis points in 2021. The offshore yuan and onshore yuan are the best-performing currencies in Asia this year. BLOOMBERG