Emerging-market stocks jump, FX gains as dollar weakens

Emerging-market stocks gained on Friday, picking up on a trend set earlier by Asian and US share, and currencies touched their highest in more than a week against the dollar.

Shares in China rose , following gains among US stocks, aided by strength in banking shares after regulators announced measures to help banks replenish capital.

The onshore Chinese yuan gained against as the dollar weakened when investors moved into other currencies.

“People are taking comfort from the positive sentiment around China – it is supporting markets” said Jakob Christensen, chief analyst and head of EM research at Danske Bank. US-China trade talks would drive emerging markets next week, he said.

MSCI’s index of emerging-market stocks was up 1% on the day, on track for a fifth straight weekly gain. Its emerging-market currency index was up 0.2%.

Developing-world assets are set to round off a strong week, with gains in stocks, currencies and bonds.

The yield spread between emerging-market hard-currency debt and US Treasuries shrank to its narrowest since November 9 this week. The sovereign spread on the JPMorgan EMBI Global Diversified index fell to 361 basis points on Thursday.

A surprise leadership challenge to Venezuelan President Nicolas Maduro has spurred activity by investors and traders in the oil-rich nation’s vast pool of defaulted bonds.

In emerging Europe, Romania’s leu strengthened against the euro. Hungary’s forint and the Czech crown gained at least 0.1 percent against the common currency and 0.2% against the dollar.

The currencies rose after European Central Bank President Mario Draghi “kind of toned down the possibility of a rate hike this year” on Thursday, weakening the euro, Danske Bank’s Christensen said.

Higher oil prices after the United States threatened sanctions on Venezuela propped up Russian energy stocks, which helped the main index rise 0.4%.

However, the Russian rouble fell when the central bank said it would begin its foreign-currency purchases on February 1.

South Africa’s rand rose 0.1% on improved risk sentiment, while local stocks rose 1% with Naspers rising 1.6%.

Naspers rose after a 4.1% gain by Chinese internet giant Tencent, of which it holds about 31.1%, according to Refinitiv Eikon data.