EM stocks at five-week high ahead of central bank meet

Emerging market stocks rose on Wednesday as investors piled into riskier assets on the prospect of a ramping up of stimulus in major economies, while Turkey’s lira extended its longest losing streak since May on bets of another super-sized interest rate cut.

MSCI’s index of developing world stocks gained 0.6% to hold on to five-week highs as equities benefited from a broad “risk-on” mood in global markets.

Most Asian indexes rose, led by Hong Kong shares, up 1.6% as activists called off anti-government protests in remembrance for the September 11, 2001 attacks on the United States. Stocks in South Korea and Taiwan followed suit.

Mainland China stocks lagged, ending lower despite the scrapping of quota restrictions in two major inbound investment schemes on Tuesday, as conflicting signals over progress in US-China trade negotiations kept investors on the sidelines.

In a conciliatory gesture, China said it would exempt 16 types of US products from additional retaliatory tariffs starting September 17, which will be valid for a year.

A senior White House advisor however, played down expectations for the next round of talks.

“There are still many uncertainties in the coming trade talks. An exemption list of just 16 items will not change China’s stance,” ING’s Greater China economist Iris Pang wrote in a note.

“We believe that China will stand very firm in the negotiations, which will be similar to the last round of talks.”

Outside Asia, Moscow and Istanbul stocks moved between 0.5% and 0.7% higher.

But Johannesburg’s JTOPI dropped 1.8%, weighed down by a steep slide in shares of e-commerce group Naspers , which listed its global empire of consumer internet assets under the name of Prosus on the Amsterdam exchange.

Read: Prosus lists at R1 238 a share

Most emerging market currencies made nominal moves as investors remained squarely focused on central bank meetings this week, starting with Poland’s monthly decision on interest rates due later in the day.

The Polish zloty was little changed against the euro ahead of the rate decision, at which analysts expect interest rates to remain at 1.5%, according to a Reuters poll.

More closely watched will be the European Central Bank’s monetary policy meeting on Thursday, with markets hoping for a stimulus package from outgoing President Mario Draghi.

“At the risk of sounding like a broken record, it’s the fiscal bazooka that’s needed now, not the worn out monetary one,” said Kit Juckes, currency strategist at Societe Generale.

Turkey’s lira fell 0.3% to extend its longest losing streak since May ahead of an expected interest rate cut on Thursday.

The central bank, which slashed its key interest rate by 425 basis points to 19.75% last month, is under pressure to continue the downward trend as President Tayyip Erdogan looks to achieve an economic growth target of 5% in 2020.

South Africa’s rand shed 0.4%, having climbed nearly 1% in the previous session after ratings agency Moody’s said on Tuesday the country was unlikely to suffer a credit downgrade to junk status in the short term.

Read: Moody’s slashes SA’s 2019 growth forecast, again