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Emerging stocks set for biggest weekly rise in 10 months as ECB fuels rally
[LONDON] Emerging equities were headed on Friday for their biggest weekly gain in 10 months, while bonds and currencies rallied across the board, thanks to the European Central Bank's trillion-euro stimulus pledge.
MSCI's emerging equities index was more than one per cent higher after the ECB on Thursday announced details of its planned bond-buying scheme, with sharp gains on Asian bourses such as Hong Kong, Taiwan, South Korea and India.
The MSCI Asia ex-Japan index rose one per cent.
"The ECB move is supportive for global stocks and that has also helped emerging market sentiment. So EM has reacted quite positively. The near-term call is in favour of EM but longer-term there may be risks to that trade," said Manik Narain, strategist at UBS.
Analysts said the stimulus could end weeks of outflows from emerging market funds, though latest data from EPFR Global, cited by bankers, shows money continues to flee the asset class.
Emerging credit funds lost 0.4 per cent of assets, local currency bonds lost 0.6 per cent, and equity funds shed 0.4 per cent of assets, bankers said.
In central Europe, the Hungarian forint and Polish zloty hit 5-week highs to the euro. Other emerging currencies also firmed against the euro, with the Turkish lira and South African rand at around 18-month highs. Brazil's real touched a four-month high on Thursday.
"We could easily see 4-5 per cent declines in euro/lira and euro/real over coming weeks especially if the Greek political impasse does not escalate, nor the US Federal Reserve take material steps towards the first tightening," ING Bank said.
Hungary's US$2 billion bond due 2023 rose half a cent to trade at 111 cents to the dollar. Poland's US$2 billion 2023 bond rose 0.75 cents to 101 cents in the dollar.
Polish and Romanian 10-year local yields hit new record lows as investors piled in to take advantage of their yield differential with the eurozone and expected rate cuts in Poland and Romania.
Regional stocks too extended gains, with Prague gaining the most.
A moderate rise in the oil price after the death of Saudi King Abdullah helped Russian assets, with the rouble gaining 0.6 per cent against the dollar and Moscow stocks rising one per cent.
But firmer oil failed to halt the slide in Nigeria's naira which dropped 1.5 per cent.