Bengaluru — Emerging-market (EM) stocks neared a record high on Friday as hopes of economic recovery and loose monetary policy lifted sentiment, while most currencies in Europe, the Middle East and Africa fell against a recovering dollar.
The MSCI’s index of EM stocks rose 1.4% to a 13-year peak, trading a few points shy of a record high, with Turkish, Russian and SA bourses hitting record peaks.
Progress in coronavirus vaccines has helped MSCI’s EM index rally 24% since October, well above US equities, with the prospect of favourable US trade policies under a new administration and record-low interest rates also lending support.
In comparison, the S&P 500 benchmark is up about 13% over the same period.
The Democrats’ taking of the US Senate this week also spurred capital flows into assets outside the US, as the possibility of increased fiscal spending and corporate taxes took some sheen off US risk assets.
“Investors are getting more comfortable wading further out into risk-on waters, considering that the spillover from 2020’s downside risks has subsided, including Brexit concerns and the US election cycle,” Han Tan, market analyst at FXTM wrote in a note.
“Now, investors are gravitating towards the increased likelihood of more incoming US fiscal stimulus in light of the Democrats’ sweep of the Georgia Senate runoffs.”
But foreign exchange markets, particularly those in Europe, the Middle East and Africa remained sensitive to coronavirus-related ructions, as well as some mild dollar strength.
Turkey’s lira dropped 1.1% from a 4.5-month high as the central bank’s net international reserves fell to their lowest in nearly two decades. The central bank bled out its 2020 reserves to protect the lira from pandemic-led disruptions, though the currency began to recover after the bank embarked on a steep rate-hiking spree towards the end of 2020.
The rand edged up to the dollar after plunging 2.5% in the prior session, even as spiking coronavirus cases and concerns over local debt continued to weigh on sentiment. The rand was set to largely underperform its peers for the week with a 5.2% loss, its worst week since April 2020.
However, news that the country has secured some doses of coronavirus vaccines gave investors some comfort.
Central European currencies retreated to the euro, while Polish and Hungarian equities hit a more than 10-month high.