Emerging-market assets pare losses with Beijing plan in focus
EMERGING-MARKET (EM) stocks trimmed weekly losses and currencies halted an eight-day rout ahead of a key briefing from China’s finance minister, where he is expected to unveil fresh measures to revive the world’s second-largest economy.
The MSCI gauge for developing-nation stocks ended the day 0.2 per cent higher on Friday (Oct 11), led by gains in Taiwan Semiconductor, MediaTek and PDD Holdings. Still, EM equities posted their first weekly decline in five weeks.
An index of emerging currencies also gained for the first session in nine, with the US dollar stabilising. Mexico’s peso and South Africa’s rand were among the biggest beneficiaries on the day, while the Brazilian real slumped as much as 1.2 per cent on further worries about the nation’s fiscal policy.
In the US, consumer sentiment unexpectedly fell for the first time in three months, while a measure of prices paid to US producers was unchanged last month. Traders have parsed economic readings as they assess whether the Federal Reserve will be forced to slow its interest-rate cutting cycle.
“There is another burst of optimism for China stimulus this week that is supporting EM currencies,” said Brendan McKenna, an emerging markets economist and foreign-exchange strategist at Wells Fargo.
“The consumer confidence data was also a bit soft, leading markets to believe the Fed may be cutting rates well into 2025.”
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Analysts predict Beijing could announce as much as 2 trillion yuan (S$369.4 billion) in new fiscal support on Saturday, to bolster growth and restore confidence.
Goldman Sachs said the recent rally in EM equities had been fueled by a 40 per cent surge in Chinese stocks from their lows, with China’s outperformance relative to the rest of EM at its widest point in 25 years.
“We expect further upside in EM equities,” Goldman’s strategists, including Kamakshya Trivedi, wrote in a note to clients. “The trifecta of non-recessionary Fed cuts, easing by other EM central banks, hopes of a stimulus-led growth revival in the dominant China market, and a backdrop of strong, mid-teens corporate earnings growth at fair valuations keeps us constructive on the EM equity complex.”
The bank said that while geopolitical risks such as US elections and Middle East tensions could introduce volatility, it remains optimistic, forecasting the MSCI EM index to reach 1,300 over the next 12 months.
In Latin America, Bolivia’s dollar bonds extended their rally and notes due in 2030 climbed to the highest level since November 2023.
Elsewhere in emerging markets, a multibillion-dollar plan to expand South Africa’s electricity transmission network may throw a lifeline to the country’s corporate bond market as it struggles to recover from a post-pandemic slump. BLOOMBERG
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