EM-Stocks hit near three-week peak as investors dump bonds

Emerging market stocks advanced on Wednesday as investors fleeing a selloff in bonds poured cash into equities, while Russia’s rouble eased marginally after Ukraine said talks with Moscow were “confrontational” but moving forward.

Global bond markets have slumped in recent sessions on signs that the U.S. Federal Reserve would act even more aggressively to tame inflation, with the benchmark US 10-year Treasury yields jumping to its highest since May 2019.

That has left cash on the table for equities, and helped MSCI’s index of EM stocks rise 0.8% to its highest in nearly three weeks on Wednesday.

Emerging currencies, meanwhile, were flat against a steady dollar. The rouble continued to hover around 104 against the greenback as investors waited for US President Joe Biden to unveil new sanctions against Russia during his trip to Europe.

South Africa’s rand firmed slightly after data showed that headline consumer price inflation was at 5.7% in February, unchanged from January.

The South African Reserve Bank (SARB) is expected to raise its repo rate to 4.25% on Thursday to combat inflation, according to a Reuters poll.

“The sudden more hawkish stance by developed market central banks … provides added incentive for the SARB to increase rates in congruence with its peers and try to limit capital outflows,” said Shaun Murison, senior market analyst at IG.

“Of concern is that the size of the South African economy remains smaller than it was pre-pandemic and will remain so in the coming years, unless growth can be stimulated significantly higher than what is currently forecast.”

Improved risk sentiment and high commodity prices could boost the prospects of some emerging market assets, even as supply disruptions and weak external demand raise risks of weaker growth, analysts have said.

Elsewhere, Argentina’s central bank raised the benchmark interest rate by 200 basis points to 44.5% from 42.5%, the third hike this year as the bank takes aim at a global “supply shock.”

Turkey’s lira TRY= firmed 0.2% as data showed consumer confidence in the country climbed 1.3% in March, rebounding from a decline in the previous month.

The Egyptian pound steadied after two days of losses, with more signs of a possible new finance package with the International Monetary Fund (IMF) emerging after the government announced a budget restructuring.

The South Korean won also steadied after the country nominated veteran IMF official Rhee Chang-yong as its new central bank chief, a pick who is expected to continue efforts to curb inflation with aggressive rate hikes.