EM-Russian rouble steady amid hopes for peace, China stocks slide

The rouble steadied on Monday amid hopes for progress in Russia-Ukraine talks, while China stocks took a beating on a renewed surge of Covid-19 cases and a weakening growth outlook.

A glimmer of hope emerged after US Deputy Secretary of State Wendy Sherman said Russia might be willing to have substantive negotiations over Ukraine. The rouble, was flat in onshore markets, with more negotiations scheduled later in the day.

But uncertainty about the fate of any negotiations remained.

“These talks aren’t likely to lead anywhere … in fact, there’s a risk this conflict could widen from a diplomatic point of view,” said TD Securities’ head of emerging markets strategy Cristian Maggio, adding that markets were facing the twin risks of inflation and risk aversion amid the crisis.

The rouble has lost almost 30% against the dollar since Russian troops entered Ukraine, despite measures rolled out by the central bank to stem losses. The central bank said on Monday it planned to switch to publishing official exchange rates based on extended trading hours.

Meanwhile, Chinese shares ended lower as a continued surge of Covid-19 cases further clouded the outlook, while regulatory concerns and US delisting risks sent Hong Kong-listed tech giants to a new low, dragging the Hang Seng benchmark .HSI down by 5% to its lowest since March 2016.

The MSCI’s index for emerging market stocks fell 2.2%, extending declines after its fourth consecutive weekly plunge last week amid mounting tensions over the Ukraine war and imminent rate hikes. The index is headed for its biggest monthly drop since the outbreak of the pandemic in March 2020.

“In this environment, commodities exporters will be relative outperformers, but in absolute terms, they may not perform well at all because of the risk that is much greater – which is of a global recession,” Maggio said.

This week, the US Federal Reserve and the Bank of England are expected to raise interest rates, while a slew of other central bank meetings, including in Russia, Brazil, Turkey and the European Central Bank are likely to dominate investor focus.

On Monday, the dollar index crept up as traders braced for the Fed to begin hiking rates.

South Africa’s rand slipped 0.4% against the dollar as commodity prices eased, while the Turkish lira was flat after gaining on Friday.

Currencies in Central and Eastern Europe including the Hungarian forint, Polish zloty and Czech crown were cautiously stronger against a weaker euro.