EM-EM stocks, currencies step back after rally; Moscow shares restart trade

Emerging market stocks and currencies retreated on Thursday after solid gains recently, while some Russian stocks rose as trading resumed in the country following a month-long hiatus.

The MSCI’s index of developing world stocks slipped 0.6% after hitting over a two-week high in the previous session, while its currencies counterpart slipped 0.2% against a firming dollar in the wake of hawkish comments from US Federal Reserve officials.

Investors also braced for potential interest rate hikes in South Africa and Mexico.

All eyes were on Russia’s largest bourse, the Moscow Exchange, which was up 5% as of 0959 GMT in a shortened trading session, supported by measures including a ban on short selling.

“Local buyers and Russian rainy-day funds are coming into stabilise the market and give a positive spin to the opening so that it doesn’t seem so bad,” said Jakob Christensen, chief analyst and head of EM research at Danske Bank.

State lender VTB, which is subject to sanctions, slipped 1.8%, while Sberbank and energy major Rosneft rose between 7% and 21% in London morning trade.

“Fundamentally, the value of (Russian) companies have depreciated due to the sanctions … For companies that have a global presence, there should be a negative shock to the equity price, but those that are producing mainly for the Russian market could weather the situation better,” Christensen said.

The rouble firmed 2%, extending gains after President Vladimir Putin’s statement that Russia would start selling its gas to “unfriendly” countries in roubles.

US President Joe Biden was scheduled to meet with G7 representatives and address leaders of the European Union, with markets on the lookout for any escalation of sanctions on Russia.

South Africa’s rand steadied ahead of a central bank decision later in the day where the bank is expected to raise the repo rate by 25 basis points to 4.25%.

The Mexican peso also steadied ahead of its central bank meeting where the bank is expected to hike rates by 50 basis points to 6.50%.

EM currencies and stocks indexes are set to end the week 0.2% and 1.6% stronger respectively as many of their commodity-linked constituents have seen a boost from a steep rally in prices in the recent sessions, owing to the war in Ukraine.