Emerging-market stocks rally to highest since 2018

Emerging-market stocks climbed to the highest level in more than two years and most currencies strengthened as Democrat Joe Biden moved closer to victory in the U.S. presidential election.

The MSCI gauge of developing-nation equities rose past a January peak as investors cheered the prospect of a Democratic president and a Republican-controlled Senate. Indonesia’s rupiah and the Russian ruble paced currency advances. Not all risk assets rallied. China’s offshore yuan and the South African rand both gave up some of the gains they made Wednesday.

A Biden victory appears to be welcomed by emerging markets as it would allow lawmakers to pass a U.S. stimulus plan and reduce geopolitical uncertainty including trade tensions with China. As expectations for a Biden win strengthened, a measure of volatility in developing-nation currencies dropped to near the lowest since August.

“It still looks positive for equities including EM,” said Adrian Zuercher, head of global asset allocation at UBS Wealth Management in Hong Kong. “There will be some fiscal stimulus, a vaccine benefits all equities, and the Fed will be more dovish at the margin than it would have been in a Blue Wave.”

The MSCI emerging-market stock index climbed as much as 2% to the highest since May 2018, erasing all its post-pandemic losses.

India’s Sensex index also retraced all its 2020 declines as it rallied during Thursday’s trading. A gauge of developing-nation currencies rose to a nine-month high, advancing 0.6%.

Developing-nation assets see-sawed during Wednesday’s U.S. vote count as Biden’s tally initially fell short of opinion-poll projections and prospects of a sweeping Democrat win in both houses diminished, reducing optimism over a huge stimulus package. Trump’s campaign said it‘s suing in Pennsylvania and Michigan to halt vote counts that were trending toward Biden.

While the Democrats now look less likely to take control of the Senate, “expected modest fiscal spending and perceived foreign-policy stability should be supportive of hard-currency EM bonds,” said Ek Pon Tay, money manager for emerging-market fixed income at BNP Paribas Asset Management in Singapore.

© 2020 Bloomberg L.P.