EM-Stocks steady with eyes on Russia-Ukraine talks

Emerging market stocks pared losses made in Asian hours as investors focused on peace talks between Russia and Ukraine, while Moscow stocks slid 1% as the market is gradually reopening after a suspension caused by Western sanctions.

MSCI’s index of developing world stocks lost up to 0.7% in Asia trading as Shanghai’s two-stage lockdown to contain surging Covid-19 cases fuelled worries about a hit to economic activity.

Energy stocks led declines on Russia’s MOEX index, with Sberbank tumbling 4%.

However, it will a be a shorter trading day, with foreigners still barred from selling stocks and OFZ rouble bonds.

OFZ bonds fell slightly, while the rouble strengthened to trade between 93-97 per dollar.

“The Finance Ministry, the central bank and potentially also Russian state owned companies will need to be relatively active in the markets… as there is a risk of lower liquidity and that could cause volatility,” said Per Hammarlund, chief emerging markets strategist at SEB.

“It would create a sharp sell off pressure if they were to allow foreign investors to trade freely.”

Most other currencies in the developing world lost out to a stronger dollar, with Turkey’s lira down 0.2% and China’s yuan off 0.1%.

With peace talks between Russia and Ukraine set to begin in Turkey later in the day, Ukrainian President Volodymyr Zelenskiy insisted on territorial integrity after earlier suggesting he was ready for a compromise. A senior Ukrainian official said he did not expect any major breakthrough.

War worries and rising expectations of a hawkish US Federal Reserve have pushed emerging market currencies down 0.5% this year.

However, commodity-linked currencies, such as the rand and those in Latin America, have outperformed after sanctions on Russia sent prices of oil and metals soaring.

“With Shanghai going into lockdown, China’s real estate financing trouble and the potential for stagflationary signs in EU and the US, the risk for EM assets is on the on the weak side,” said Hammarlund.

Chinese blue-chips fell 0.6%, but a 1.3% jump in Hong Kong stocks and gains outside China left the broader emerging markets index flat on the day.

In central and eastern Europe, currencies fell despite a weaker euro. Poland’s zloty dropped 0.5%, and Hungary’s forint fell 0.2% ahead of elections over the weekend.

Hungary’s nationalist Prime Minister Viktor Orban, one of Europe’s longest-serving leaders, will face a close race against an opposition united against him for the first time since he swept to power in 2010.